Project update (Agenda Paper 14)

This agenda paper was aimed to provide a summary of the current initiatives in progress to address issues related to the reporting of climate-related and other uncertainties in financial statements, including their status and upcoming steps. In particular:

• Staff is engaging in outreach regarding examples, including the application of materiality, to demonstrate how IFRS Accounting Standards can be applied to report the impacts of climate-related and other uncertainties in financial statements. Outreach results and draft examples are expected to be presented to the IASB for discussion in Q1 2024.
• Staff is researching targeted amendments to IFRS Accounting Standards for better estimates disclosure. Assessing whether standard-setting benefits outweigh costs, including unintended consequences, is part of the ongoing exploration.
• The IFRS Interpretations Committee (IFRS IC) discussed the reflection of climate-related risks in the application of IAS 36 at its November 2023 meeting, indicating that entities already consider and address variability over an extended time horizon under IAS 36, making additional standard-setting or explanatory material unnecessary.
• On the recognition of a liability, for example in case of commitments to reduce greenhouse gas emissions by a specified date and commitments that involve uncertain amount or timing of outflows, in line with IAS 37, the IFRS IC received a submission and decided to publish a tentative agenda decision, expected in early December, for public consultation.
• With reference to the request of some stakeholders to better understand the extent to which an entity’s assets, liabilities, equity, income, expenses and cash flows are exposed to specific risks (e.g. entity’s assets located in geographies subject to significant physical climate-related risks), the Primary Financial Statements project will strengthen requirements around aggregation and disaggregation of information in the financial statements. This might improve the information entities provide about items subject to specific risks. The final Standard is expected in Q2 2024.

• The final amendments to the classification and measurement of financial instruments is expected in H1 2024. This can be useful to clarify the requirements to assess the contractual cash flow characteristics of ESG-linked financial assets, to determine whether to measure those assets at fair value or amortised cost.
• On power purchase agreements (PPAs), there is a project aimed at exploring whether narrow-scope amendments could be made to IFRS 9 to improve information for users about PPAs. The IASB will discuss the research conducted for this project in December 2023.
• The summary of the post-implementation review of the IFRS 9 impairment requirements is expected by H2 2024. This could address observations made by stakeholders about the incorporation of climate-related risks in the measurement of the expected credit loss allowance.
• The staff is currently exploring the development of an article about the objective of financial statements, their audience, their boundaries and how they can be complemented by sustainability-related financial disclosures, such as those provided applying ISSB Standards.
• To improve awareness of educational material on how to report climate-related and other uncertainties in the financial statements, the staff has created a central source of information on its website. This website includes translations of educational material into different languages (more to be posted as it becomes available), as well as information about other work in progress on this area.

The IASB was not asked to make any decisions at this meeting. Instead, the staff asked whether IASB members have any comments or questions on the status of and next steps for the climate-related and other uncertainties in the financial statements project.

IASB discussion

IASB members discussed the most effective strategy to move the current project forward, focusing on the following key considerations:

• The final goal of the project and the need to properly understand the real issues underlying the request to reduce inconsistencies between the back-half and the front-half sections of annual reports.
• Subject to the proper understanding of the first point, what is the best way to provide additional guidance? Through articles/educational material or through improvements to the existing standards?

It was mentioned that it is important to note that the ongoing project is a maintenance project and not a disclosure project on climate risks in the financial statements.

The staff confirmed that it acquired valuable insights to progress further with the project.