Stack of papers

The IFRS Foundation on Nov. 20, 2020, published educational material to highlight how existing international financial reporting standards (IFRSs) require companies to consider climate-related matters when there is a material effect to their financial statements.

Information is material if “omitting, misstating or obscuring it could reasonably be expected to influence decisions that primary users of financial statements (hereafter, investors) make on the basis of those financial statements, which provide financial information about a specific company,” a text of the document states. For example, information about how management has considered climate-related matters in preparing a company’s financial statements may be material with respect to the most significant judgments and estimates that management has made.

The document, Effects of climate-related matters on financial statements, was developed in response to companies’ request for further information on the topic, the Foundation said.

“Climate change is a topic in which investors and other IFRS stakeholders are increasingly interested because of its potential effect on companies’ business models, cash flows, financial position and financial performance,” the document states. “Most industries have been, or are likely to be, affected by climate change and efforts to manage its impact. However some companies, industries and activities will be affected more than others.”

IFRS standards do not refer explicitly to climate-related matters, but companies must consider climate-related matters in applying IFRS standards when the effect of those matters is material in the context of the financial statements taken as a whole.

The document contains a non-exhaustive list of examples of when companies would consider climate-related matters in their reporting and would help support the application of IFRSs in a consistent manner. It does not add to or change the requirements of a standard, a text of the document states. About 12 standards were featured in the examples including: IAS 12, Income Taxes; IAS 16, Property, Plant and Equipment; IAS 38, Intangible Assets; IFRS 7, Financial Instruments: Disclosures; IFRS 9, Financial Instruments; IFRS 13, Fair Value Measurement; and IFRS 17, Insurance Contracts.

The educational material was issued amid efforts by the Foundation to establish a global sustainability standards board under its governance structure that would initially focus on standardizing reporting rules on climate-related matters.

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