Cover paper (Agenda Paper 14)

The objective of this session was to discuss the maintenance project on Climate-related Risks in the Financial Statements. The IASB was asked to decide on the objective of the project and on the proposed potential actions to help address concerns about reporting the effects of climate-related risks in the financial statements.

Project objective (Agenda Paper 14A)

The original project included only climate-related risks in the financial statements. Considering the feedback received by stakeholders, the reporting of climate-related risks in the financial statements might be best achieved if the IASB applies potential actions to all risks rather than to one specific risk, including, where possible, examples specific to climate-related risk.

Staff recommendation

The staff recommended generalising the objective of this project to explore whether and how financial statements can better communicate information about climate-related and other uncertainties.

IASB decision

9 of the 13 IASB members present decided that the objective of this project is to explore whether and, if so, how targeted actions could improve the reporting of financial information about climate-related and other uncertainties in the financial statements.

Because of this decision, the project was renamed to ‘Climate-related and Other Uncertainties in the Financial Statements’.

Results of work on the nature and causes of concern (Agenda Paper 14B)

The increasing disclosures about sustainability-related risks and opportunities, including climate-related risks and opportunities, outside the financial statements might have contributed to stakeholder concerns by highlighting potential inconsistencies between the financial statements and information reported elsewhere.

The staff think that some concerns raised by stakeholders can potentially be addressed through articles and educational material, agenda decisions or standard-setting. The IASB will not be asked to make any decisions.

IASB discussion

The discussion was held together with Agenda Paper 14C.

Potential actions (Agenda Paper 14C)

This paper discussed a package of potential actions the IASB could take to help address concerns about reporting the effects of climate-related risks in the financial statements.

Staff recommendation

The staff recommended that the IASB:

• Explore clarifying or enhancing requirements in IFRS Accounting Standards or adding illustrative examples in relation to:
  • Disclosures about estimates
  • Connections within the financial statements as well as across the financial statements and other general purpose financial reports
  • The concept of materiality
  • The ‘catch-all’ disclosure requirement in IAS 1:31
• Refer to the IFRS Interpretations Committee questions about:
  • The recognition of a liability applying IAS 37 for climate-related commitments
  • The measurement of value in use when an asset is subject to highly variable future cash flows over an extended time horizon for purposes of impairment testing applying IAS 36

IASB discussion

The discussion focused mainly on the need to perform standard-setting activities on climate-related risks in the financial statements.

Some comments were raised with reference to:

• The need to perform a cost-benefit analysis in evaluating standard-setting and providing illustrative examples
• The timing of the publication of educational material
• The analysis of the activity already performed by the ISSB

IASB decision

8 of the 13 IASB members present supported the possibility to explore standard-setting in relation to disclosures about estimates to help address concerns about reporting the effects of climate-related risks in the financial statements.

The majority of IASB members did not support exploring standard-setting with regard to:

• Connections within the financial statements as well as across the financial statements and other general purpose financial reports the standard-setting process in relation (7 of 13 IASB members voted against)
• The concept of materiality (10 of 13 IASB members voted against)
• The ‘catch-all’ disclosure requirement in IAS 1 (11 of 13 IASB members voted against)

All 13 IASB members present supported the possibility to explore illustrative examples understanding that those will go through the due process.

All 13 IASB members present agreed to submit to the IFRS Interpretations Committee (IFRS IC) a question about the recognition of a liability when applying IAS 37 to climate-related commitments.

9 of the 13 IASB members present agreed to consult the IFRS IC with reference to the measurement of value in use when an asset is subject to highly variable future cash flows over an extended time horizon for purposes of impairment testing applying IAS 36.