Key points

The International Accounting Standards Board (IASB) reissued its educational material ‘Effects of climate-related matters on financial statements’ in July 2023, which was originally issued in November 2020. The educational material was republished to reflect the issuance by the International Sustainability Standards Board (ISSB) of IFRS S1, ‘General requirements for disclosure of sustainability-related financial information’, and IFRS S2, ‘Climate-related disclosures’, in June 2023.
There were no substantive changes to the educational material from what was originally issued. The educational material continues to contain examples of how companies might consider climate-related matters and risks in their financial reporting under IFRS® accounting standards.
In addition, in March 2023 the IASB started its new project ‘Climate-related Risks in the Financial Statements’ to explore whether and how financial statements can better communicate information about climate-related risks. There have been no changes to authoritative guidance yet as a result of the new project.
What is the issue?
Climate-related risks are an important topic which might have an impact on an entity’s operations and financial performance. IFRS accounting standards do not explicitly address climate risk, but the principles that underlie various judgements and estimates made in the preparation of the financial statements will often incorporate climate risk factors.
It is also important to note that IAS 1 has an overarching disclosure requirement: to disclose information if that information is needed to enable investors to understand the impact of particular transactions, other events and conditions on the company’s financial position and financial performance. Therefore in light of the current focus on, and impact of, climate change, entities should ensure that they have undertaken a rigorous assessment to ensure that all of the material information affecting the financial statements in this respect is provided.
What topics are covered by the educational material?
The educational material contains a non-exhaustive list of examples regarding how climate risk might affect the measurement and disclosure requirements of various standards and the various paragraphs of those standards that might be referenced in determining how to incorporate such risks. The following is a list of standards covered and the main topics for the standard discussed:
Main topics addressed
IAS 1 – Presentation of financial statements
  • Disclosures relating to sources of estimation uncertainty, significant judgements and going concern.
IAS 2 – Inventories
  • Net realisable value of inventories
IAS 12 – Income taxes
  • Recoverability of deferred tax assets
IAS 16 – Property, plant and equipment
IAS 38 – Intangible assets
  • Useful lives and residual values
  • Research and development expenditures
IAS 36 - Impairment of assets
  • Impairment indicators
  • Recoverable amounts
  • Disclosures
IAS 37 – Provisions, contingent liabilities and contingent assets
IFRIC 21 – Levies
  • Recognition, measurement and disclosure
IFRS 7 – Financial instruments: disclosures
  • Risks relating to financial instruments, including expected credit losses, concentration of credit risk and concentrations of market risk
IFRS 9 – Financial instruments
  • Classification and measurement, including impairment
IFRS 13 – Fair value measurement
  • Impact on fair value measurement and disclosures, particularly those within level 3 of the fair value hierarchy
IFRS 17 – Insurance contracts
  • Impact on measurement of insurance contract liabilities and disclosures
Does the educational material discuss materiality?
Yes, the educational material notes that companies must consider climate-related matters in applying IFRS accounting standards where the effect of those matters is material in the context of the financial statements taken as a whole. It is also noted that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that primary users of financial statements make on the basis of those financial statements, which provide information about a specific company [IAS 1 para 7]. Primary users of financial statements are referred to as investors throughout the document.
What is the nature of educational material and does it contain an effective date?
The educational material is issued by the IASB to support the consistent application of existing requirements in IFRS accounting standards.
The educational material does not form part of IFRS accounting standards, and it cannot add to or change the requirements in the standards. However, it is still useful material that IFRS accounting standards users might benefit from when considering IFRS accounting standards.
This educational material supplements an article published in November 2019 by an IASB Board member on the subject of climate-related disclosures.
Because the educational material does not modify any existing standards, it does not have an effective date or transition provisions.
Where do I get more details?
For more information, please contact Henry Daubeney (henry.daubeney@pwc.com), Gary Berchowitz (gary.x.berchowitz@pwc.com) or Scott Bandura (scott.bandura@pwc.com).
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