The International Financial Reporting Standards Foundation has published a set of
The early publication aims to support timely, informed application of such reporting. While the examples use climate-related fact patterns, they offer guidance that can apply broadly to all kinds of other uncertainties. The examples demonstrate how companies can apply IFRS Accounting Standards to enhance disclosure of uncertainties in the financial statements.
The International Accounting Standards Board developed the examples in response to stakeholder feedback about insufficient information about uncertainties, particularly climate-related uncertainties, and apparent inconsistencies in the information a company provides. The IASB worked alongside the International Sustainability Standards Board to ensure the examples would work well with the ISSB's sustainability-related disclosure requirements.
"By publishing the examples in near-final form, we are providing companies with earlier visibility of our work," said IASB chair Andreas Barckow in a statement Thursday.
The project has been underway for several years, even before the
"Investors were telling us that they would read about sustainability-related matters, sometimes transition plans or other things that the company was thinking about, perhaps in the MD&A/management commentary or in other documents outside the financial statements, but then they wouldn't see any disclosures at all or any mention of the same topic in the actual financial statements," said IASB vice-chair Linda Mezon-Hutter. "They had a hard time understanding if there was any actual financial effect in the current period about those plans, and they didn't like the fact that there was a disconnect between what was outside the financial statements and what was inside the financial statements."
One of the things the IASB started trying to do was to explore such uncertainties. Similar disclosures could be used for tariffs as well. "You could generalize the thinking to other types of uncertainties, like what's the effect of tariffs now that we're in a big world of tariffs," said Mezon-Hunter.
When the IASB staff started looking at its existing literature, they found there actually was enough guidance available in the standards. "We determined it was more of an application problem than something missing from the standards," said Mezon-Hutter. "That was what led us to thinking about the illustrative examples. The other reason we went to illustrative examples is we could do those much faster than a traditional standard-setting project where we had to open up standards, re-look at the language, do our research, come back with an exposure draft, expose the exposure draft, get those comments and make the changes to the standards, etc. Investors told us that they wanted as timely a solution as we could give to them. That's what led us to do the illustrative examples."
The examples can inform investors about the current period. "We hope that these illustrative examples will help preparers and auditors work their way through what should be done in terms of financial disclosures," said Mezon-Hutter. "What we're interested in is the impact, if any, of these items within the financial statements for the current period. We're not really talking about projecting to the future, which is more in the realm of the ISSB. But what we're talking about is, is there any impact in that in the current period? If there is, and it's material, you need to disclose it. If there isn't, sometimes what investors told us is they see certain entities in an industry doing these types of disclosures, but then this company over here might not be doing the disclosures, and that makes the investors wonder if there should be disclosure. And in that case, the entity could assume that the information is qualitatively material, if not quantitatively material, and the entity could make a statement to say there is no current financial impact in these financial statements for this particular uncertainty. At the end of the day, that's what we're trying to clarify with the illustrative examples."
She believes the guidance could be useful in the U.S. as well, even though most U.S. companies report in U.S. GAAP rather than IFRS, and in recent years there has been a backlash against ESG, particularly now under the Trump administration when clean energy companies are losing their tax credits under the new tax legislation.
"It's fair to say that the U.S. environment is a bit more difficult when it comes to sustainability matters," said Mezon-Hutter. "But we know that there's quite a number of large global multinationals that actually use IFRS and are also listed in the U.S., so they use IFRS to file their statements with the SEC, and the SEC reviews their statements. We know that the SEC will be looking at IFRS-prepared statements and hopefully see an improvement in these types of disclosures. We also know — because we still have dialogue with the SEC on a regular basis — the SEC is very supportive of the fact that if this type of information is material to the current financial statements, it should be in the financial statements. They clearly agree that anything related to climate, if it's material information, it belongs in the financial statements, and it should be disclosed in a transparent way. So we know that the SEC will be accepting of this type of disclosure in terms of how it relates to the particular entity. While the U.S. itself is not high on sustainability, and while the SEC has withdrawn its climate guidance, you still have pockets within the U.S. — California as an example — where they're very big on this type of information, and they're moving that ahead. And we know that because foreign private issuers use IFRS, that the SEC will be receiving this type of disclosure. We'll be very interested in hearing from them what they think of the disclosures and how useful they are."
The IASB regularly consults with the U.S. Financial Accounting Standards Board, which has avoided working on sustainability standards, but did
"We meet on a regular basis with representatives from the FASB, and in the last discussion that I was involved in with them, they were very interested to see how we landed on our examples and what the result of us putting the examples out would be," said Mezon-Hutter. "They're going to be monitoring our project, and they're going to be monitoring the output when companies start actually reporting, and these are effective, so it's going to be very interesting to see how it evolves."
