Key points

  • Climate change is a business risk and as such could impact an entity’s cash flow projections
  • Assumptions used for such projections should be aligned to any strategy and business plan an entity has made in its response to climate change
  • Assumptions used for projections in the financial statements interact with, but are not necessarily identical to, the assumptions used in reporting specific climate change scenarios
  • Care needs to be taken to ensure that narrative reporting, including where relevant, TCFD scenario disclosures, and inputs/disclosures in the financial statements are not inconsistent
  • There are challenges incorporating the impact of climate change into cash flow models for impairment purposes under the value in use model as there are restrictions on including future restructuring/improvements. In many models the final forecast year used to create a terminal value will not have reached a steady state 
What's inside (free registration required to view):
  1. Key points
  2. What is the issue?
  3. How might cash flow forecasts be impacted?
  4. How could the VIU terminal value and the forecast period be impacted?
  5. Notion of reasonable and supportable assumptions in VIU models
  6. How could the discount rate be impacted?
  7. VIU modelling - traditional approach vs scenario analysis
  8. Capital expenditure in VIU forecast models
  9. Interplay between financial statement disclosures and narrative reporting
  10. What do I need to do now?
  11. Where do I go for more information?

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