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The Blind Spot: How ESG matters can affect current accounting and financial reporting

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Sep 07, 2021

There have been some questions about whether a company needs to incorporate ESG considerations when preparing its current financial statements. The answer, is a resounding “yes.”

The Financial Accounting Standards Board (FASB) and Securities Exchange Commission (SEC) have been providing guidance, making statements and delivering speeches about accounting and financial reporting considerations for environmental, social and governance (ESG) matters since the beginning of spring to address growing interest and concerns from investors, credit rating agencies, lenders, financial statement preparers, and a host of other stakeholders. The media has covered this regulatory activity, while also focusing much of the discussion about how ESG matters will affect a company’s business strategy, operations, and long-term value.

Lost, however, or what could be viewed as a blind spot in the coverage is a discussion about any related impact on a company’s current accounting conclusions and financial reporting. Accordingly, there have been some questions about whether a company needs to incorporate ESG considerations when preparing its current financial statements. The answer, is a resounding “yes.”

This article looks at certain potential effects of ESG matters on a company’s financial accounting and reporting in the context of the existing accounting guidance and the current regulatory environment. While these effects will vary depending on the company’s industry along with factors such as relevant regulatory, legal, and contractual obligations, all entities should evaluate ESG-related financial accounting and reporting implications.

Review the article on FEI's website.

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