International Updates

Improved approach for disclosure requirements from the IASB

Source: IRFS website

The International Accounting Standards Board (IASB) has concluded its project on improving its approach to developing and drafting disclosure requirements. The improved approach is designed to help the IASB develop Accounting Standards that would enable companies to make better judgements about which information is material and should be disclosed, thereby providing more useful information to investors.

The improved approach is summarised in guidance that the IASB has published, alongside a Project Summary and Feedback Statement, as part of the IASB’s Targeted Standards-level Review of Disclosures project.

The improved approach involves:

• engaging early with investors to understand their information needs;
• developing disclosure requirements alongside recognition and measurement requirements;
• considering the digital reporting implications of new disclosure requirements;
• using general and specific objectives that describe and explain investors’ information needs; and
• supporting specific objectives by requiring companies to disclose items of information that would satisfy the objectives in most cases.

The IASB intends to use this approach when developing disclosure requirements.

Read more here.

IASB gives insights into decisions made on merger and acquisition disclosures and goodwill accounting

An ‘In Brief’ article has been published by the International Accounting Standards Board (IASB) to explain two major decisions that have been made in the Business Combinations—Disclosures, Goodwill and Impairment project.

Rika Suzuki, IASB member, discusses the reasons for the IASB’s decisions about how companies could disclose better information about mergers and acquisitions (business combinations), and whether to retain the impairment-only model to account for goodwill or to explore reintroducing amortisation of goodwill.

Business Combinations—Disclosures, Goodwill and Impairment is now a standard-setting project, which involves the preparation of an exposure draft that contains proposals of amendments.

Read the full article here

IFRS Sustainability Symposium - 17 February 2023

Online or in Montreal

Join global businesses, investors and policymakers to discuss progress towards a global baseline of sustainability disclosures to inform investment decisions, including discussions on:

• themes of feedback received on the exposure draft standards and progress towards publishing the final standards
• the prospect for regulatory adoption of the IFRS Sustainability Disclosure Standards
• the need for capacity building for both emerging economies and small and medium-sized companies
• preparedness of investors and corporates to use and disclose with the standards, and
• #integratedreporting best practices and use cases.

Find out more and register here  

#globalbaseline #sustainabilitydisclosures #capitalmarkets #IFRSSustainability23 IFRS Foundation

Call for Research Proposals - Intangible Assets

The accounting standard which addresses intangible assets (IAS 38 Intangible Assets) was issued in the late 1990s and remains substantively the same. Since the 1990s the world has changed significantly, creating many new types of intangibles, not originally contemplated when the standard was written. Stakeholders, both in New Zealand and internationally, have raised concerns about this. These concerns have been noted and there is a current international call for research into various aspects of the accounting for intangible assets, to provide evidence to assist in a comprehensive review of IAS 38.

To understand the New Zealand perspective and, as part of its contribution to the international discussion, the XRB invites proposals for research projects relating to the accounting for intangible assets. A research grant of NZ$5,000 will be available.

Proposals to be submitted by 14 October 2022.

For more information click here

XRB submission to the International Sustainability Standards Board (ISSB)

Our feedback to the ISSB on its first two proposed IFRS Sustainability Disclosure Standards signalled broad support for the drive towards global consistency and the development of a global baseline for sustainability reporting.

The XRB submission has been informed through the extensive consultation and engagement we have undertaken over the past 18 months on Aotearoa New Zealand’s climate-related disclosure framework, and key highlights of our feedback include:

• Taking a more principles-based and less prescriptive approach to the development of both proposed standards
• Raising the ambition and working towards ‘one pillar’ for sustainability reporting, rather than setting out to create two pillars (i.e., a focus on capital markets and investors by the ISSB, and a focus on multi-stakeholder reporting by the GRI) that are interoperable
• Not permitting alternatives to scenario analysis
• Not mandating industry specific metrics
• Moving the disclosures on offsets from transition plans to greenhouse gas emissions reductions targets

Find out more by reading the full submission here.

Operationalising transparency about independence - IAASB amendments to Auditing standards

The International Auditing and Assurance Standards Board (IAASB) are currently consulting on narrow scope amendments to ISA 700 (Revised), Forming an Opinion and Reporting on Financial Statements and ISA 260 (Revised), Communication with Those Charged with Governance.

These amendments have been proposed as a result of the International Ethics Standards Board for Accountants’ (IESBA) revisions to the International Code of Ethics, that require a firm to publicly disclose when the Public Interest Entity (PIE) independence requirements have been applied in an audit of financial statements.

In the New Zealand context, adopting these proposals would mean that where the PIE requirements are applied, the auditor’s report will be required to disclose this as well as disclosing that the auditor is independent of the entity.

You can submit your comments to the XRB by 16 September 2022, or directly to the IAASB, with a copy to the XRB, by 4 October 2022.

Resolving the disclosure dilemma - Call for Research Proposals

Making materiality judgements is an important but not always straight forward aspect of preparing financial statements.  

In partnership with the XRB, the IASB is calling for academic proposals for research that will help inform the IASB's next steps in addressing the ‘disclosure problem’. The objective of the research is to provide information to enable the IASB to assess the effects of recent guidance on making materiality judgments on preparers, investors, auditors, and regulators.

A research grant of NZ$5,000 will be available.  

Further information

Improving disclosure practice - the ISAB's Disclosure Initiative

There are some concerns that preparers may be taking a ‘boilerplate’ approach to the preparation of financial statements and not applying appropriate judgement when selecting the most meaningful, useful, and relevant information to disclose. But making sound materiality judgement can be difficult because different readers or users of financial reports will inevitably have different information needs. 

The International Accounting Standards Board (IASB) are looking at ways to improve this through their Disclosure Initiative project which will focus on addressing the following three main concerns highlighted by stakeholders:  

1. not enough relevant information;  

1. too much irrelevant information; and  

1. ineffective communication of the information provided. 

Submissions of interest to the XRB closes on July 2022.

ISSB publishes proposals for Climate-related disclosures

The International Sustainability Standards Board (ISSB) has recently published its first two proposed IFRS Sustainability Disclosure Standards which when final, will form a comprehensive global baseline of sustainability disclosures designed to meet the information needs of investors when assessing enterprise value.  The proposals for Climate-related Disclosures will establish disclosure requirements for climate‑related risks and opportunities.

Emmanuel Faber, the Chair of the ISSB introduces the proposals in a short video here.

For those of you short on time, there is a handy snapshot document here.

Overview of the ISSB Proposals

The two proposed standards are IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures.

IFRS S1 applies to all sustainability topics not just climate. This means that from day 1 even in the absence of the other ISSB Standards, entities would have to follow a high-level framework for disclosing information about all sustainability topics that are material to them.

IFRS S2 is the ‘climate’ standard and is to be applied in conjunction with IFRS S1. IFRS S2 proposes requiring an entity to disclose information that would enable an investor to assess the effect of climate-related risks and opportunities on its enterprise value.

The draft standards build on the prototypes previously published by the IFRS Foundation’s Technical Readiness Working Group (TRWG).

The requirements in IFRS S2 are consistent with the four recommendations and 11 recommended disclosures published by the Task Force on Climate-related Financial Disclosures (TCFD). IFRS S2 does include some additional specific disclosures for example, in requiring disclosure of industry-based metrics relevant to an entity’s industry and activities.

The ISSB consultation

The ISSB’s consultation is open for comment until 29 July 2022. The ISSB plans to issue the standards before the end of 2022 when they will be available for immediate voluntary adoption.

The ISSB asks for submission letters, or survey responses. Note that the ISSB has set up separate consultation platforms for each exposure draft.

XRB staff will be responding to the request for comments. If you do submit on the proposals, please send a copy of your submission letter to the XRB at climate@xrb.govt.nz.

To read the ISSB’s proposals in full:

ISSB - Climate-related Disclosures consultation

ISSB - General requirements for Sustainability-related Disclosures consultation

New US Securities and Exchange Commission climate proposals 

This week, the United States Securities and Exchange Commission (US SEC) released their proposed framework for mandatory climate-related disclosures for public consultation. 

Similar to the XRB’s mandate to deliver a climate-related disclosure framework for Aotearoa New Zealand, this proposal aims to ensure both domestic and foreign entities are disclosing climate-related information, including financial risks and climate related metrics, in their US financial statements.  

Overview of the US SEC proposals  

The proposal requires registrants to disclose: 

• Governance of climate-related risks and relevant risk management processes; 
• The number of climate-related risks that have or are likely to have, a material impact on its business and consolidated financial statements over the short, medium, or long-term; 
• How any identified climate-related risks have affected or are likely to affect strategy, business model, and outlook; 
• The process for identifying assessing and managing climate related risks; 
• The impact of climate-related events (severe weather events and natural conditions) and transition activities on the line items included in the consolidated financial statements, as well as on the financial estimates and assumptions used in the financial statements; 
• Scope 1 - Direct greenhouse gas (GHG) emissions and Scope 2 indirect GHG emissions from purchased electricity or other forms of energy; 
• Scope 3 - Disclose GHG emissions from upstream and downstream activities in its value chain if material or if the registrant has set a GHG emission target or goal that includes scope 3 (noting that smaller registrants are excluded from scope 3 emissions disclosures); and 
• Climate-related targets or goals, and any transition plan, if any. 

Close alignment to NZ’s proposed disclosures 

As with New Zealand, SEC’s proposals are modelled on the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). This includes the same four key areas of Governance, Risk Management, Strategy, and Metrics and Targets, as well as drawing on the GHG Protocol. This is similar to the proposals made by the IFRS Foundation’s Technical Readiness Working Group (TRWG). (See here for a comparison between the XRB, TCFD and TRWG disclosures). 

Key differences 

There are minor differences between the XRB’s proposals and those of the US SEC. Included in the US SEC disclosures are:  

• The addition of the qualifier ‘if used’ on many of the disclosures 
• A phase-in period for scope 3 emissions disclosures (including for smaller companies) up to fiscal year 2025 for some entities 
• An explicit requirement for a direct link between climate disclosures and financial statements: “the impact of climate-related events (severe weather events and other natural conditions) and transition activities on the line items of a registrant’s consolidated financial statements, as well as on the financial estimates and assumptions used in the financial statements” 
• A requirement to disclose about offsets and renewable energy certificates: “If carbon offsets or renewable energy certificates (“RECs”) have been used as part of the registrant’s plan to achieve climate-related targets or goals, certain information about the carbon offsets or RECs, including the amount of carbon reduction represented by the offsets or the amount of generated renewable energy represented by the RECs” 

The consultation 

The US SEC consultation is open for comment until 20 May 2022. If approved the US SEC intends to implement these changes to reporting from 2024. 

To read the proposal in full, click here.  

IAASB responds to increased demand for assurance engagements on sustainability and ESG reporting

 The IAASB have recently announced that they will dedicate capacity and resources to the assurance of sustainability/ESG reporting.

 Information gathering and research activities to determine future IAASB action has commenced in January this year, with initial work underway to determine scope and timing. The IAASB have also signalled a strong commitment to collaborate with key stakeholders globally, including the standard-setting and regulatory communities.

Their consultation could lead to:

• Development of new subject-matter specific standard(s) that build on and supplement ISAE 3000 (Revised);
• Targeted enhancements to ISAE 3000 (Revised), as necessary; or
• Revising existing guidance or developing new guidance. 

In 2021, we published the IAASB’s comprehensive guidance to support application ISAE 3000 (Revised) to Extended External Reporting (EER) Assurance Engagements along with  a navigation tool to help point users to relevant chapters.