Unlocking Synergy - Understanding Coherence and Connectivity when preparing Climate-related Disclosures and Financial Statements

This month we are hosting Dr Andreas Barckow, Chair of the International Accounting Standards Board (IASB) in New Zealand. At a panel discussion in Auckland, Dr Barckow will explore emerging issues in financial reporting – in particular connectivity and coherence. 

So, what exactly does connectivity and coherence mean?  Charis Halliday, Technical Director of Accounting Standards and Lisa Kelsey, Senior Project Manager, Sustainability Reporting share their insights. 

Simply put, connectivity is about joining the dots between the financial statements of an entity and its climate-related disclosures. Coherence is a broader term used to describe the relationship between the various items of information presented in an entity’s
climate-related disclosures overall, including how the information relates to its
financial statements.

While connectivity and coherence are not entirely new concepts, the introduction of mandatory climate-related disclosures emphasises the need for a clear understanding of how this information relates to an entity's financial statements.

To achieve connectivity and coherence, there are practical tips to follow. Securing high-level buy-in from directors is crucial, as they ultimately approve both the financial statements and climate-related disclosures. Their support sets the tone for what is deemed important for users of the reports.

Effective communication and collaboration between teams responsible for preparing financial statements and those handling climate-related disclosures are essential.
By working together and speaking a common language, these teams can enhance connectivity and ensure a coherent presentation across both reporting streams.

It is also important to focus on user needs when determining how to present information. To address potential doubts about the relationship between financial statements and climate-related disclosures, clear signposting or cross-referencing can be used, making it easier for users to understand how these two sets of information fit together.

It is worth noting that climate-related disclosures and financial statements serve distinct purposes, and as a result, there will be differences driven by factors such as materiality thresholds, time horizons, reporting boundaries, units used, and criteria for recognition, measurement, and disclosure.

Despite these differences, achieving connectivity and coherence are vital for providing transparency and helping users understand the extent to which climate-related matters are reflected in an entity's financial statements.

Read our other Insights articles here.