Sustainability
The International Sustainability Standards Board (ISSB) has issued its inaugural standards—IFRS S1 and IFRS S2. The Standards will help to improve trust and confidence in company disclosures about sustainability to inform investment decisions.
IFRS S1 provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium and long term. IFRS S2 sets out specific climate-related disclosures and is designed to be used with IFRS S1. To learn more, read AB articles Time to prepare for S1 and S2, IFRS 2 about to drop, and Sustainability standards published.
The European Commission has eased sustainability reporting requirements under its planned 12-strong set of European Sustainability Reporting Standards (ESRS). These first draft standards have been released for feedback until 7 July. The European Union executive intends to delay some of the reporting requirements proposed by the European Financial Reporting Action Group in November 2022 and to make others voluntary.
For instance, in the first financial reporting year companies can omit ‘anticipated financial effects related to non-climate environmental issues (pollution, water, biodiversity, and resource use)’. Undertakings would be allowed to omit sustainability metrics on value chains for three years of ESRS reporting, and the issue of biodiversity transition plans would become voluntary. The European Commission will release the finalised standards after the consultation period concludes.
Meanwhile the International Public Sector Accounting Standards Board (IPSASB) is moving forward on the development of a public sector climate-related disclosures standard, publishing a project brief. A climate-related topic working group will be set up to provide climate-related expertise and advice for this project, and a ‘sustainability reference group’ will advise on the board’s sustainability standards development programme. A draft standard is to be approved by June 2024, and a finalised standard released during the second half of 2025.
Tax
The International Accounting Standards Board (IASB) has issued urgent amendments to IAS 12, Income Taxes, to help major companies account for deferred taxes while complying with the Pillar Two tax reforms of the Organisation for Economic Co-operation and Development (OECD). The Pillar Two rules impose a minimum 15% tax rate on large multinationals. To help maintain consistency in accounts, the amendments introduce a temporary exception to IFRS accounting rules for deferred taxes in jurisdictions implementing the OECD rules. The changes also include targeted disclosure requirements to help investors understand exposure to income taxes arising from the reform.
The IASB has also proposed a series of changes to its IFRS for SMEs Standard to take account of the changes in global tax rules prompted by Pillar Two, even though those rules directly impact only larger companies with annual revenues exceeding €750m. The reforms reflect the help offered with the IAS 12 changes – SMEs get a temporary exception to accounting for deferred taxes related to Pillar Two and targeted disclosure requirements.
Disclosure
The OECD has adopted updated guidelines for multinational enterprises on responsible business conduct, which includes guidance on disclosing ‘responsible business conduct information’. Among the issues covered are:
- major share ownership, including beneficial owners, and voting rights
- board members, including their qualifications, remuneration and an assessment of their independence
- governance structures and policies
- debt contracts, including the risk of non-compliance with covenants.
The IASB has also issued disclosure requirements to enhance the transparency of supplier finance arrangements and their effects on a company’s liabilities, cashflows and exposure to liquidity risk. The amendments require a company to disclose finance arrangements terms and conditions; the amount of liabilities agreed, with amounts received from finance clarified, and where liabilities sit on the balance sheet; ranges of payment due dates; and liquidity risk information.
Financial instruments
The IASB is reviewing whether its ‘expected credit loss’ requirements under IFRS 9, Financial Instruments – introduced following the global financial crisis – have continued to operate effectively during and following the Covid-19 pandemic. The reforms were designed to warn investors of potential future credit losses.
Public sector
IPSASB has issued an integrated package of changes related to revenue and transfer expenses. The package includes an update and clarification of chapter 5, Elements in Financial Statements, in its conceptual framework, as well as changes to IPSAS 47, Revenue, and IPSAS 48, Transfer Expenses. The objective is to create a straightforward accounting model for recognising and measuring transfer expenses and to provide a single up-to-date source of guidance for all revenue transactions.
IPSASB has also released a package of measurement-related changes. The package includes an update of chapter 7, Measurement of Assets and Liabilities in Financial Statements, in its conceptual framework, as well as changes to IPSAS 45, Property, Plant and Equipment, and IPSAS 46, Measurement. The board said the aim is to enhance property, plant and equipment guidance and to clarify the recognition and measurement of infrastructure and heritage assets.
Economic crime
IFAC and the International Bar Association – the global organisations for the accountancy and legal professions – have agreed to expand their cooperation, with a particular focus on fighting corruption, money laundering and other economic crime. The two bodies will also consult on ensuring that initiatives to regulate both the accountancy and legal professions are proportionate and fit for purpose, and on influencing global policy issues.
IFAC has also released an online tool to help professional accountancy organisations undertake anti-corruption work. The ‘anti-corruption advocacy workbook’ is designed to help accountancy profession leaders create locally appropriate anti-corruption policies and advice.
