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PwC observation: Identifying value |
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The application guidance explains that the resources that an entity depends on and impacts can vary and take different forms. These resources include, but are not limited to, financial, manufactured, intellectual, human, relationship, and natural. [IFRS S1 App B para B4]. These are similar to the capitals within the Integrated Reporting Framework (IRF). Paragraph BC41 of IFRS S1 clarifies that, even though the objective of IFRS S1 builds on the IRF, IFRS S1 does not use identical terms.
Understanding the concept of ‘value’, as explained in the IRF, helps to focus on the areas of a business which lead to value preservation, regeneration, development or deterioration and depletion. For example, an increase in training would develop the value of the human aspect of the business but would deplete the financial side, although not necessarily by the same amount.
Value created, eroded or preserved for others
Paragraph B3 of IFRS S1 references the close relationship between an entity’s ability to create value for itself and the value it creates, preserves or erodes for other parties. This could be misinterpreted by preparers as a reference to impact materiality
. To clarify the close relationship between the value that the entity creates, preserves or erodes for others and the entity’s own ability to succeed and achieve its goals, refer to the following example.
The pesticides used to protect an entity’s crops from disease today might affect the surrounding bee populations responsible for the pollination of the crops. The entity’s ability to generate future cash flows from the sale of the crops is inextricably linked to the health of the bee population. If the pesticides used inadvertently kill the bee population, the crops won’t be pollinated and, as a result, the entity’s use of pesticides today might impact the entity’s ability to sell the crops in the future. Consequently, the health of the bee population impacts the entity’s ability to generate value for itself.
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