While both the IASB and the new ISSB will be independent, both boards are expected to work “in very close cooperation to drive compatible reporting from the outset,” IASB Chair Andreas Barckow told a U.S. conference.
“This is a message that we have also heard loud and clear from our stakeholders and advisory bodies—connectivity between accounting requirements and sustainability disclosure requirements is essential,” he said in a speech on December 7 at the 2021 AICPA & CIMA Conference on Current SEC and PCAOB Developments.
Barckow’s remarks come at a time when sustainability issues have become a mainstream topic for every company board of directors.
“And for good reason—it is here where robust processes and controls resides,” he said. “So, for those involved in financial reporting, let me assure you—sustainability is going to become part of your day job—if it isn’t already!”
The formation of the International Sustainability Standards Board—the ISSB—was announced at the COP26 climate conference in November by the IFRS Foundation, and was welcomed by more than 40 jurisdictions around the world, including the U.S. Views in the accounting profession have been mixed because the topic is huge – spanning environment, social, and governance (ESG) matters.
The ISSB’s purpose is to develop a comprehensive global baseline of investor-focused, sustainability-related disclosure standards for the global capital markets. And a foundational prototype of climate-related and general disclosures are already in place.
“It will be up to each jurisdiction to decide whether and how to incorporate the global baseline into their own requirements,” said Barckow. “And there will be no requirement for the jurisdiction to be using IFRS Accounting Standards.”
Barckow, who took up the chair helm at the IASB on July 1, also highlighted the delineation between that board and the ISSB’s core responsibilities as they work hand in hand.
“The IASB is predominantly focused on reporting transactions and events that have taken place up until the reporting date; the ISSB’s focus is on risk and opportunities that could impact the company’s future value and cashflows,” he said. “We must work to avoid gaps, frictions, or unnecessary overlaps in the two boards’ literature. The two types of information should neatly fit together like two pieces in a puzzle.”
The principle-based nature of IFRS standards means that sustainability issues such as climate change and other emerging risks are already covered by existing requirements, Barckow explained. For example, companies are required to consider sustainability-related matters in their financial statements when their effect is material to users of the financial statements.
About a year ago, the IASB published educational material that highlighted the potential relationship between current requirements in IFRS and climate-related matters. Topics covered include impairment, provisions, and insurance contract liabilities—and issues such as risks arising from financial instruments.
This article originally appeared in the December 8, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.
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