November 26, 2024
Andreas Barckow, Chair
International Accounting Standards Board
Columbus Building
7 Westferry Circus
Canary Wharf
London, E14 4HD.
Submitted by email [email protected]
RE: Exposure Draft Climate-related and Other Uncertainties in the Financial Statements IASB/ED/2024/6
Dear Dr. Barckow:
The Virginia Society of CPAs (VSCPA) Accounting & Auditing Advisory Committee (Committee) has reviewed the Exposure Draft (ED) Climate-related and Other Uncertainties in the Financial Statements, issued by the International Accounting Standards Board (IASB). The VSCPA is the leading professional association in the Commonwealth of Virginia dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. The VSCPA membership consists of nearly 12,000 individual members who actively work in public accounting, private industry, government, and education.
The Committee supports the overall objective of improving the information that entities provide about the effects of climate-related risks and other uncertainties in the financial statements. We also agree with the proposal to provide illustrating examples on how to apply the IFRS standards to report climate-related and other uncertainties in financial statements. Illustrated examples will help entities in reporting these effects and strengthen the consistencies and connections between the information included in the financial statements and information reported outside of the financial statements for climate-related uncertainties. However, there are significant concerns related to Examples 1 and 2. Specifically, new disclosure principles and materiality judgements for accounting standards (v. illustrative examples) are introduced within these examples. Such changes would be more appropriately handled in IFRS Practice Statement 2, Making Materiality Judgements.
Example 1 implies that any entity considers any and all risks that would affect the decision-making process of investors or potential investors. This requirement would be broader than uncertainties only related to climate-related disclosures. Extending this requirement to other uncertainties in the financial statements would not seem practicable. Further, such analysis and disclosures appear to go beyond the technical requirements of IAS 1.
The Committee is mindful that IFRS Sustainability Disclosure Standards (SDS) require disclosure of material information about climate-related risks and opportunities that could be reasonably expected to affect an entity’s prospects1, even if there is no direct effect on the current financial statements. However, the principles of materiality as currently applied under IFRS Accounting Standards are not the same as the approach outlined in the IFRS SDS. Accordingly, the financial statements do not necessarily need to address all the risks and opportunities disclosed in an entity’s sustainability disclosures outside of the financial statements, including the requirement to provide an explicit statement in the financial statements that such risks are not material to the financial statements. It would seem more appropriate to include such explanations only in the sustainability disclosures. This approach would enhance connectivity and consistency without introducing a new materiality or disclosure requirement for financial reporting.
Example 2 (similar to Example 1) deals with materiality judgements. Judgement on materiality is complex and specific to the facts and circumstances of each case. It is not expected that the IFRS Accounting Standards would provide explicit guidance on the outcomes of materiality judgements. Both examples 1 and 2 do make specific judgements on materiality with regard to disclosure requirements. Again, it would seem more appropriate to include such explanations only in the sustainability disclosures.
In summary, we recommend that Examples 1 and 2 be deleted from the illustrative examples and addressed in IFRS Practice Statement 2, Making Materiality Judgements. We have no significant comments on Examples 3-8.
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The VSCPA appreciates the opportunity to respond to this ED. Please direct any questions or concerns to VSCPA Vice President, Advocacy & Pipeline Emily Walker, CAE, at [email protected] or (804) 612- 9428.
Sincerely,
Michael Phillips, CPA
Chair 2024-2025
VSCPA Accounting & Auditing Advisory Committee
VSCPA Accounting & Auditing Advisory Committee 2024-2025
Michael Phillips, CPA —Chair
Daniel Martin, CPA — Vice Chair
Zach Borgerding, CPA
Joshua Keene, CPA
Nick Kinsler, CPA
Brian Minor, CPA
Elisa Obillo, CPA
Krisia Raya, CPA
Charles Valadez, CPA
Natalya Yashina, CPA