The International Accounting Standards Board (IASB) voted on Monday to launch a public consultation on a series of proposed worked examples covering how businesses account for climate-related commitments and other uncertainties across several international accounting standards.
Staff told the 22 April board meeting that feedback from IASB members and advisors “indicates broad support for, or no general disagreement with, our approach to developing the examples and including the examples as illustrative examples accompanying IFRS accounting standards”.
The board agreed to issue the proposed guidance, which is subject to drafting changes, on a 120-day comment period.
Board members did, however, emphasise that the project was strictly limited in scope and was not about making changes to the board’s accounting rule book.
Bruce Mackenzie, a board member, said: “We’d love to write a textbook on this, but that’s not our job. So I think the selected examples we’ve got make sense. And I wouldn’t try to go too far.”
His board colleague Petrina Buchanon added: “We don’t view anything in here as adding to changing requirements, so let’s be absolutely crystal clear about that.”
The issue of accounting for climate-related commitments has come into sharp focus in recent years amid the explosion in sustainability reporting and corresponding pledges from companies to transition to lower-carbon operations.
Investor concerns
Investors and others complain, however, that companies have failed to back up these statements with hard numbers in their accounts despite making bold claims about their commitment to targets such as net zero.
The IASB’s official position for the best part of half a decade has been that the requirements in IFRSs are sufficient to cover the accounting for climate-related commitments.
In a November 2019 opinion piece, IASB member Nick Anderson wrote that although the phrase ‘climate change’ does not feature in the board’s literature, the standards “do address issues that relate to climate-change risks and other emerging risks”.
Board considers draft examples
As presented to the board, the draft examples set out to illustrate how to apply IFRSs to report the effects of climate-related and other uncertainties in the financial statements.
One of the examples deals specifically with the fact pattern of a petrochemicals company that has “plant decommissioning and site restoration obligations” but has not disclosed the cost of settling those obligations.
The example notes that even where provisions might seem immaterial, transparent disclosure of uncertainties and assumptions surrounding these liabilities is important information for investors so that they can understand what future costs the company may face.
Alongside this work to provide guidance on applying international standards to climate-related commitments, the board’s interpretation committee recently declined to add a project to develop a full-scale interpretation on the topic.
The IASB is slated to review the committee’s decision that “the principles and requirements in IFRS Accounting Standards provide an adequate basis to determine” an appropriate accounting treatment later this week.
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