Climate risk accounting
A number of issues can arise as companies begin to consider climate risk in their financial statements. In particular, the carrying value of assets may be affected by changing customer preferences, increased costs, government regulation and unavailability of bank finance for non-green businesses. Useful life may be affected as will value in use, so impairment reviews will be triggered. Going concern may also be called into question if a company’s products become unpalatable or even illegal.
Companies may also see an increase in provisions and onerous contracts. A supply contract that becomes loss-making due to increased regulation or shortages or increased costs will need to be provided for once the loss becomes apparent. Remedial costs for environmental damage done in the past may pass the threshold for a provision as there is increased focus by customers and government on such damage.
Sustainability toolkit
A new SME sustainability playbook resource is available from ACCA to assist SMPs in helping their SME clients to become sustainable. The International Federation of Accountants has issued a similar publication.
All along the supply chain, small companies are already being asked to complete sustainable disclosure documents by their large corporate customers. These are the so-called Scope 3 suppliers to companies that will be required to report under the EU’s corporate sustainable reporting directive. In the near future, given the current public pressure for action on climate change, every business that has retail sales will be expected to be (and be able to prove they are) sustainable.
Small companies are already being asked to complete sustainable disclosure documents by their large corporate customers
Sustainability assurance
Sustainability disclosures without accompanying independent assurance can undermine a company’s sustainable credentials and leave it open to charges of greenwashing. Accountancy Europe has produced a set of FAQs that describes the different levels of assurance, and discusses the difference between ‘limited assurance’ and ‘reasonable assurance’.
Credit unions
The core values of an average credit union map closely to 14 of the 17 UN Sustainable Development Goals (SDGs). No other type of organisation straddles and contributes to as many of the SDGs; examples include non-status lending helping to alleviate poverty, ‘cultivation’ loans supporting sustainable farming, education loans supporting inclusive education and the Credit Union Foundation’s support for micro-lending projects in the developing world.
Millennials, in particular, are more keen to buy from sustainable businesses, although this age demographic is poorly represented among credit union customers. Credit unions have an opportunity at their 2022 AGMs to bring in volunteers for sustainable committees to drive further sustainability activities and communicate their sustainability.
Auditor CPD
New rules on continuing professional development (CPD) for auditors come into effect on 1 January 2022. From that date records of both CPD attendance and CPD planning by auditors, will change. Both of these are legal requirements under the Companies Act 2014, and new guidance has been issued by the Irish Auditing and Accounting Supervisory Authority (IAASA). Auditors must now observe the following:
- They must comply with IES 8, Professional Competence, mapping their CPD against a list of 15 topics, meeting most of the 15 every year and all of them within three years.
- A ‘soft’ rule is that at least seven hours of audit CPD is needed a year to meet the requirements of IES 8, although some of that time can be non-verifiable (ie reading).
- Auditors with no audits must also keep up their audit CPD in the same way as active ones.
- Auditors must prepare a CPD plan to show that all IES 8 categories will be met.
- Auditors must keep audit CPD records for six years (before 2022, it was three years).
- ACCA must monitor the audit CPD of non-ACCA responsible individuals working in an ACCA-regulated audit firm. (Likewise, ACCA members in audit firms regulated by Chartered Accountants Ireland (CAI) or CPA Ireland will have their CPD monitored by those organisations.)
- If an auditor has not confirmed compliance with IES 8 for the previous year, then ACCA must relieve them of ACCA membership by April of the following year.
Auditors can find CPD resources in the AB CPD feed. Further resources are available via ACCA’s CPD finder.
