The standards issued by the Institute of Sustainability Standards Board (ISSB) are not yet mandatory in South Africa. Consequently, many people are under the impression that sustainability and climate-related reporting is not a thing they need to worry about just yet. Right? Wrong!
The other body that is part of the IFRS Foundation, the International Accounting Standards Board (IASB), issued educational material that highlights some of the areas that are already impacted by climate related matters. Here is a summary of the areas cited:
- IAS 1 Presentation of Financial Statements – This standard requires disclosure of significant estimates and judgements which may include significant climate-related risk that may result in material adjustment of assets and liabilities. Furthermore, Going Concern may be impacted by climate-related physical and transition risks and this potential impact needs to be disclosed.
- IAS 2 Inventories – Stock may need to be written down to net realiseable value as a result of climate-related occurrences.
- IAS 12 Income Taxes – Deferred tax assets may not be recoverable as a consequence of climate related exposures having a negative effect on future taxable income.
- IAS 16 Property, plant and equipment – Estimates for both PPE and intangible assets for useful lives and residual values may need to be revised as a result of exposure to climate-related risks.
- IAS 36 Impairment of Assets – Assets may need to be impaired as a result of climate change impacts that have reduced the recoverable amount below the carrying amount. Furthermore, IAS 36 requires disclosure of events that have led to impairment.
- IAS 37 Provisions, contingent liabilities and contingent assets – An example is a mine with a 30-year provision for restoration which may need to be revised given expected rising temperatures in the next decade.
- Financial Instruments – For both IFRS 9 and IFRS 7 there are a number of potential impacts including the fact that expected credit losses would need to be revised for impacted industries and disclosure of all risks, including climate risks, that could impact financial instruments.
- IFRS 13 Fair Value – Climate related matters may result in changes in market participant’s views of the fair value of assets and liabilities.
- IFRS 17 Insurance – Increased occurrence of climate driven insured events may accelerate the timing of occurrence of losses.
Written by KC Rottok Chesaina, Chief IFRS Officer @ Financial Minds.For IFRS Training and Consulting services, email us on ask@fineminds.co.za.
