IFAC notes that organisations must ensure effective oversight arrangements to deliver high quality, cost effective and decision useful reporting to implement the International Sustainability Standards Board’s (ISSB’s) standards and jurisdictional standards and regulatory requirements for sustainability-related disclosure.

The intent of the placemat is to prepare audit committees with effective questions to ask when overseeing sustainability and ESG related disclosures.

The placemat covers key questions for audit committees in the following categories:

• Roles and responsibilities across the organisation
• Data collection, processes and controls
• What is being reported?
• Audit and assurance

The press release and the placemat are available on the IFAC website.

For more information, see the press release on the IFRS Foundation’s website.

The new appointments are:

• Wilfred Au (Canada)
• Noluthando Bobani (South Africa)
• Elaine Conway (UK)
• Fridrich Housa (Australia)
• Pramod Jain (India)
• Eng Kian Lee (Singapore)
• Ernest Muguku Muriu (Kenya)
• Eva Sundberg (Sweden)

For more information, see the press release on the IFRS Foundation’s website.

New item: IFRS 9 Financial Instruments—Application of the “Own Use” Exemption: The IFRS IC received a submission about the possibility of applying the own use exception in IFRS 9:2.4 to contracts for the procurement of renewable energy (power purchase agreements or “PPAs”) as part of an entity’s commitment to reduce the effects of climate change and to decarbonise their production and products for each of the three fact patterns. Based on the analysis, the staff considered that the principles and requirements in IFRS 9 do not provide an adequate basis for an entity to determine the appropriate accounting for PPAs and recommended that the IASB develop a narrow-scope amendment that addresses the application of IFRS 9:2.4 particularly to contracts for the purchase of a non-financial item that cannot be stored and has to be consumed within in a short time interval in accordance with the market structure in which the item is traded. In the meeting, most of IFRS IC members agreed with this conclusion.

New item: IAS 27 Separate Financial Statements—Merger between a Parent and Its Subsidiary in the Separate Financial Statements: The IFRS IC received a submission about how an entity applies IAS 27 to account for a merger with its subsidiary in its separate financial statements and whether the parent should apply the business combination accounting requirements in IFRS 3. From the findings of the information request and additional research, the “carrying amount method” (i.e. the parent entity recognises the subsidiary’s assets and liabilities at their previous carrying amounts) is the predominate method in practice and the staff did not observe diversity in accounting. The staff recommended not to add a standard-setting project to the work plan but to publish a tentative agenda decision. In the meeting, all IFRS IC members agreed with this recommendation.

Follow-up discussion on previous matter: IAS 21 The Effects of Changes in Foreign Exchange Rates and IAS 29 Financial Reporting in Hyperinflationary Economies—Consolidation of a Non-hyperinflationary Subsidiary by a Hyperinflationary Parent: In its June 2022 meeting, the IFRS IC discussed a submission about the accounting applied by a parent, whose functional currency is the currency of a hyperinflationary economy, when it consolidates a subsidiary, whose functional currency is the currency of a non-hyperinflationary economy. The IFRS IC concluded that the parent could restate or not restate the subsidiary’s results and financial position in terms of the measuring unit current at the end of the reporting period. After conducting additional research, the staff recommended the IASB develop a narrow-scope amendment that addresses the submitted fact pattern and a related matter (a situation in which an entity with a non-hyperinflationary functional currency presents its financial statements in a hyperinflationary currency). In the meeting, all IFRS IC members agreed with the recommendation to refer the matter to the IASB and the IFRS IC will present to the IASB all the facts and analysis, including the merits of restating.

Input on IASB project: Climate-related Risks in the Financial Statements: The focus of the project is to explore whether and how financial statements can better communicate information about climate-related risks. IFRS IC members gave feedback on nature of concerns, causes of concern and courses of action and scope of the project.

Input on IASB project: Business Combinations under Common Control (BCUCCs): After the analysis of feedback on selecting the measurement method to apply to a BCUCC, the IASB set out options for the project direction. The purpose of the discussion was to understand what problems are caused by the gap in guidance in IFRS Accounting Standards for reporting BCUCCs, and whether there are specific examples of when the reporting for a BCUCC resulted in financial statements that were misleading or failed to provide useful information about the BCUCC. IFRS IC members gave feedback on the project direction.  

Work in progress: The update from the March 2023 meeting was presented to the IFRS IC.

More In­for­ma­tion

Please click to access the detailed notes taken by Deloitte observers.

IOSCO has been watching goodwill accounting closely in the past. In February 2021, IOSCO called on IASB and FASB to collaborate on goodwill accounting and in November 2022 IOSCO released a statement emphasising issuers’ need for fair, transparent and timely disclosure about impacts of economic uncertainty. In that statement, IOSCO noted that, as economic circumstances evolve and change, it is critical for management to carefully assess the latest economic environment where issuers operate and reflect it in the assumptions used in the accounting estimates, including goodwill impairment tests.

The consultation states:

The consultation is open for comments until 20 September 2023. The feedback received will be used to formulate a set of recommendations for regulators, auditors, issuers and those charged with governance. They will also underpin IOSCO’s engagement with standard setters, including the IASB, on improvements to accounting, reporting and disclosure requirements related to goodwill.

Please see the following additional information on the IOSCO website:

• Press release
• Consultation document

Following a scoping and research phase, the IPSASB has now published a project brief as a first step in this major new project. The new guidance will build on international guidance by the ISSB and GRI. In addition, the IPSASB staff will monitor the IASB’s work programme relating to any climate-related financial reporting projects and engage with IASB staff as appropriate. An exposure draft of the proposed guidance is currently expected in June 2024, final guidance in H2 2025.

Please click for more information and access to the project brief on the IPSASB website.

In his speech, Mr Faber likened the issuance of the two new standards to crossing a frontier and called the new disclosure requirements "sustainability translated into an accounting language", a new common language to build more resilient economics.

Mr Faber sketched the development of global capital markets and pointed out the many frontiers that needed to be crossed, including setting up the IFRS Foundation and the IASB that developed a truly international financial reporting system that played a huge role global markets to really become global. He noted that this financial reporting system has enabled capital to flow through emerging countries including gradually into Africa.

And yet, Mr Faber stated, the world is very conscious that we are now at an even more challenging frontier for capital markets and for the future of accounting. This is due to the fact, he said, the metrics developed are no longer doing what they were needed to do as linear growth is reaching its limits:

We are reaching the boundaries where uncertainty is growing and is hitting the market, hitting financial stability — the systemic stability — of markets. Because we did not count all that counts and which ESG tries to capture.

Mr Faber then pointed out that the issuance of the first two ISSB standards was the first step in developing a consistent and comprehensive language for broadening the horizons of the financial statements. There is a need, he said, to broaden the scope by going into the entire value chains of companies and to open the time horizon.

The new language would enable companies not only to describe relationships and dependencies, but also the current and anticipated impacts that they may have and the sustainability-related risks and opportunities, as some of them may be material to investment decisions. He concluded his speech by stating:

We know there will be a learning curve. We are very clear that capacity building will be front and centre of our work for the next several months and probably several years, working with everyone in this room and beyond to ensure that this language is used effectively. And that everyone crosses the frontier and starts this critical journey together.

Please click to access the full transcript of his speech on the IFRS Foundation website.

The ISSB did not hold a technical meeting in June, therefore, the podcast does not contain any technical discussions. Please click to access the podcast on YouTube.

The Beijing office will work with the Foundation’s other offices in supporting the ISSB’s work, with staff focused on leading and executing the ISSB’s strategy for emerging and developing economies, acting as a hub for stakeholder engagement in Asia, facilitating deeper co-operation and engagement with stakeholders, and undertaking capacity building activities for emerging economies, developing countries and SMEs.

Please click for the announcement on the IFRS Foundation website.

Background

The ISSB was established in November 2021 to develop a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs. In March 2022, the ISSB launched a consultation on its first draft IFRS Sustainability Disclosure Standards (IFRS S1 and IFRS S2). After a consultation period of 120 days, the ISSB redeliberated the proposals in the draft standards and decided to finalise the proposals.

Key requirements

The main requirements in IFRS S1 broadly reflect the proposals in ED/2022/S1 General Requirements for Disclosure of Sustainability-Related Financial Information with changes introduced in the following areas:

• The concept of ‘enterprise value’
• The breadth of the reporting required
• The use of the term ‘significant’ for sustainability-related risks or opportunities
• Identifying material sustainability-related risks and opportunities and information to disclose (including using the work of other standard-setters)
• Application of the materiality assessment
• Connected information
• Frequency (or timing) of reporting
• Comparative information and updated estimates
• Proportionality of the requirements
• Current and anticipated financial effects of sustainability-related and climate-related risks and opportunities on an entity’s financial performance, financial position and cash flows

The key requirements are as follows:

• Objective: The objective of IFRS S1 is to require an entity to disclose information about its sustainability-related risks and opportunities that is useful to primary users of general purpose financial reports in making decisions relating to providing resources to the entity. IFRS S1 requires an entity to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term.
• Scope: An entity is required to apply IFRS S1 in preparing and reporting sustainability-related financial disclosures in accordance with IFRS Sustainability Disclosure Standards. An entity may apply IFRS Sustainability Disclosure Standards irrespective of whether the entity’s related general purpose financial statements are prepared in accordance with IFRS Accounting Standards or other generally accepted accounting principles or practices (GAAP).
• Conceptual foundations: For sustainability-related financial information to be useful, it must be relevant and faithfully represent what it purports to represent. The usefulness of sustainability-related financial information is enhanced if the information is comparable, verifiable, timely and understandable.
• Fair presentation: A complete set of sustainability-related financial disclosures presents fairly all sustainability-related risks and opportunities that could reasonably be expected to affect an entity’s prospects.
• Materiality: An entity is required to disclose material information about the sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects. Information is material if omitting, misstating or obscuring that information could reasonably be expected to influence decisions that primary users of general purpose financial reports make on the basis of those reports.
• Reporting entity: An entity’s sustainability-related financial disclosures are required to be for the same reporting entity as the related financial statements.
• Connected information: An entity is required to provide information in a manner that enables users of general purpose financial reports to understand the connections between the items to which the information relates and the connections between disclosures provided by the entity.
• Core content: An entity is required to provide disclosures about governance, strategy, risk management, and metrics and targets.
• Sources of guidance:
  • Identifying sustainability-related risks and opportunities: In identifying sustainability-related risks and opportunities that could reasonably be expected to affect an entity’s prospects, an entity is required to apply IFRS Sustainability Disclosure Standards and to refer to and consider the applicability of the disclosure topics in the SASB Standards. In addition an entity may refer to and consider the applicability of the CDSB Framework Application Guidance for Water- and Biodiversity-related Disclosures; the most recent pronouncements of other standard‑setting bodies whose requirements are designed to meet the information needs of users of general purpose financial reports; and the sustainability-related risks and opportunities identified by entities that operate in the same industry(s) or geographical region(s)
  • Identifying applicable disclosure requirements: In identifying applicable disclosure requirements about a sustainability-related risk or opportunity that could reasonably be expected to affect an entity’s prospects, an entity is required to apply the IFRS Sustainability Disclosure Standard that specifically applies to that sustainability-related risk or opportunity. In the absence of an IFRS Sustainability Disclosure Standard that specifically applies to a sustainability-related risk or opportunity, an entity is required to apply judgement to identify information that is relevant to the decision‑making of users of general purpose financial reports and faithfully represents that sustainability-related risk or opportunity. In making that judgement, an entity is required to refer to and consider the applicability of the metrics associated with the disclosure topics included in the SASB Standards; may—to the extent that these sources do not conflict with IFRS Sustainability Disclosure Standards—refer to and consider the applicability of the CDSB Framework Application Guidance for Water- and Biodiversity-related disclosures, the most recent pronouncements of other standard‑setting bodies whose requirements are designed to meet the information needs of users of general purpose financial reports, and the information, including metrics, disclosed by entities that operate in the same industry(s) or geographical region(s). In addition an entity may—to the extent that these sources assist the entity in meeting the objective of IFRS S1 and do not conflict with IFRS Sustainability Disclosure Standards—refer to and consider the applicability of the Global Reporting Initiative (GRI) Standards and the European Sustainability Reporting Standards (ESRS).
• Location of disclosures and timing of reporting: An entity is required to provide disclosures required by IFRS Sustainability Disclosure Standards as part of its general purpose financial reports. An entity is required to report its sustainability-related financial disclosures at the same time as its related financial statements. The entity’s sustainability-related financial disclosures are required to cover the same reporting period as the related financial statements.
• Comparative information: An entity is required to disclose comparative information in respect of the preceding period for all amounts disclosed in the reporting period. If such information would be useful for an understanding of the sustainability-related financial disclosures for the reporting period, the entity is also required to disclose comparative information for narrative and descriptive sustainability-related financial information.
• Statement of compliance: An entity whose sustainability-related financial disclosures comply with all the requirements of IFRS Sustainability Disclosure Standards is required to make an explicit and unreserved statement of compliance. An entity is not permitted to describe sustainability-related financial disclosures as complying with IFRS Sustainability Disclosure Standards unless they comply with all the requirements of IFRS Sustainability Disclosure Standards.
• Judgements: An entity is required to disclose information to enable users of general purpose financial reports to understand the judgements, apart from those involving estimations of amounts, that the entity has made in the process of preparing its sustainability-related financial disclosures and that have the most significant effect on the information included in those disclosures.
• Uncertainties: An entity is required to disclose information to enable users of general purpose financial reports to understand the most significant uncertainties affecting the amounts reported in the sustainability-related financial disclosures.
• Errors: An entity is required to correct material prior period errors by restating the comparative amounts for the prior period(s) disclosed unless it is impracticable to do so.

Effective date and transition

An entity is required to apply IFRS S1 for annual reporting periods beginning on or after 1 January 2024. Earlier application is permitted. If an entity applies IFRS S1 earlier, it is required to disclose that fact and apply IFRS S2 at the same time.

The following transitional reliefs are available:

• Comparative information: An entity is not required to disclose comparative information in the first annual reporting period in which it applies IFRS S1.
• Timing of reporting: In the first annual reporting period in which an entity applies IFRS S1, the entity is permitted to report its sustainability-related financial disclosures after it publishes its related financial statements (as specified in IFRS S1).
• Information on sustainability-related risks and opportunities other than climate: In the first annual reporting period in which an entity applies IFRS S1, the entity is permitted to disclose information on only climate-related risks and opportunities (in accordance with IFRS S2) and consequently apply the requirements in IFRS S1 only insofar as they relate to the disclosure of climate-related financial information.

Additional information

The following additional information is available on the IFRS Foundation (free registration required for some documents) website and on IAS Plus:

• ISSB press release (translations of the press release into eight other languages available)
• Access to the standard
• Access to the basis for conclusions on S1
• Effects analysis on IFRS S1 and IFRS S2
• Project summary of IFRS S1 and IFRS S2
• Feedback statement for IFRS S1 and IFRS S2
• Article Ten things to know about the first ISSB Standards
• Access to two short webcasts on the new standards
• Need to know newsletter explaining the new requirements
• Our UK Accounting Plus summary of IFRS S1
• Our UK Accounting Plus project page on General requirements
• Statement of the IFRS Foundation Monitoring Board welcoming the finalisation of the first two standards