Wednesday, 11 September 2024.
The International Accounting Standards Board (IASB) published a consultation document, proposing eight examples to illustrate how companies apply IFRS Accounting Standards when reporting the effects of climate-related and other uncertainties in their financial statements.
The cases intent to exemplify accounting judgments and assumptions, leading or not to general, specific and additional disclosures about materiality, credit risk, decommissioning, restoration provisions and disaggregated information.
The examples relate to sectors most of us talk about or work for.
(1) A manufacturer that operates in a capital-intensive industry and is exposed to climate-related transition risks. To manage these risks, the entity has developed a transition plan. The entity discloses information about the plan in a general purpose financial report outside the financial statements, including detailed information about how it plans to reduce greenhouse gas emissions over the next 10 years. The entity explains that it plans to reduce these emissions by making future investments in more energy-efficient technology and changing its raw materials and manufacturing methods.
(2) A service provider that operates in an industry that has limited exposure to climate-related transition risks. The entity discloses in a general purpose financial report outside the financial statements that it has low levels of greenhouse gas emissions, explaining that, where possible, it uses renewable energy and avoids high-emission activities. The entity also explains how it plans to keep emissions low by maintaining its current greenhouse gas emissions policy.
(3) A large emitter. The entity is subject to greenhouse gas emissions regulation in some of the jurisdictions in which it operates. Those regulations require the entity to acquire emission allowances for some of its emissions, resulting in costs (emission allowance costs). The entity expects such regulations to become more widespread in the future.
(4) A capital-intensive industry operation, exposed to climate-related transition risks that might affect its ability to recover the carrying amount of some of its non-current assets.
(5) An operation in a jurisdiction whose government has announced regulation that would restrict the entity’s ability to operate and generate profits in that jurisdiction in the future.
(6) A financial institution that provides a range of products to various types of customers. As part of its credit risk management practices, the entity considers the effects of climate-related risks on its credit risk exposures. The entity identifies two portfolios of loans that require it to monitor and take action to mitigate credit risk arising from climate-related risks:
(a) agricultural customers; and
(b) corporate real estate customers that are secured by properties located in low-lying areas subject to flood risk.
(7) A petrochemicals manufacturer that has plant decommissioning and site restoration obligations for its facilities. The entity assumes that it will continue to maintain and operate the facilities for an extremely long time, but it might be required to close some of its petrochemical facilities earlier than it expects because of efforts to transition to a lower-carbon economy.
(8) An owner of PP&E with long useful lives whose use results in high amounts of greenhouse gas emissions. The entity has invested in alternative PP&E of the same class with lower emissions but still uses the high-emissions PP&E for a large part of its operations.
Comments to this public consultation - including the question if such illustrative examples should accompany IFRS Accounting Standards - to be received by 28 November 2024.
Click at the image below to access it.
