Technical update

Sustainability

The International Sustainability Standards Board (ISSB) has proposed comprehensive amendments to the Sustainability Accounting Standards Board (SASB) sectoral standards that have been integrated into the IFRS system. The ISSB has released two extensive drafts amending SASB standards and industry-based guidance for the ISSB’s IFRS S2 standard on reporting climate risks. The changes include a comprehensive reform of standards for prioritised industries (eight in the extractive and minerals processing sector and a ninth in the processed foods industry). There are also smaller changes to SASB standards for a further 41 industries on topics such as water management and workforce health and safety. The revised IFRS S2 guidance impacts advice for reporting by the nine prioritised industries and 37 of the other 41 industries.

The Council of the European Union has backed the European Commission’s plans to simplify and reduce the burden of sustainability reporting for EU businesses. It has approved a negotiating position for discussions with the European Parliament on the reforms to EU directives on corporate sustainability reporting and due diligence. The Council wants to increase the staff threshold for mandatory sustainability reporting to 1,000 employees, add a €450m net turnover threshold, and remove sustainability reporting requirements for listed SMEs. It also wants the due diligence thresholds raised to 5,000 employees and a €1.5bn net turnover.

The Federal Council of major financial centre Switzerland – which remains outside the EU – has paused plans to align its corporate sustainability reporting rules with EU legislation.

Meanwhile, the European Commission, the EU executive, has downsized EU requirements for certain companies to assess whether they are environmentally and socially sustainable under the EU taxonomy regulation. Henceforth, assessments will be required only for activities delivering more than 10% of a company’s total revenue, capex or opex. Non-financial companies can avoid assessing all opex that is not material to their business model.

The Commission’s move comes as the European Financial Reporting Action Group (EFRAG) publishes an update on its plans to simplify the European Sustainability Reporting Standards (ESRS). EFRAG is aiming to halve the number of mandatory datapoints. It will do so by: simplifying the double materiality assessment; providing for better readability/conciseness of sustainability statements and inclusion in all corporate reporting; modifying the relationship between minimum disclosure requirements and topical specifications; improving ESRS understandability, clarity and accessibility; enhancing interoperability; and implementing more burden-reduction reliefs.

Elsewhere, the Global Reporting Initiative (GRI) has launched new climate change and energy reporting standards. GRI 102, Climate Change, sets greenhouse gas reporting expectations based on science-based targets and global climate goals, and incorporates metrics covering impacts on workers and communities. GRI 103, Energy, addresses an organisation’s energy-related impacts and activities.

The GRI’s Global Sustainability Standards Board (GSSB) has recognised the ISSB’s IFRS S2, Climate-related Disclosures, for greenhouse gas emissions reporting under GRI 102. ISSB vice chair Sue Lloyd says: ‘This will enable companies to prepare just one set of greenhouse gas emissions disclosures in accordance with IFRS S2, to meet the requirements in both standards.’

AI governance

A new international standard has been published to support the burgeoning AI audit market and ensure businesses can be confident that those assessing AI governance are doing so in a clear, consistent, and coherent manner. BS ISO/IEC 42006, published by the British Standards Institute (BSI), is the world’s first international standard designed specifically for certifying bodies that independently audit AI management systems. It is designed to protect against a ‘wild west’ of unchecked providers by enabling regulators, customers, and investors to differentiate credible AI governance implementations.

Auditing

The International Auditing and Assurance Standards Board (IAASB) has revised its anti-fraud standard, ISA 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements. The changes strengthen and clarify auditors’ role when addressing fraud, with new requirements strengthening professional scepticism throughout an audit. A section has been added with clearer, enhanced requirements guiding auditors’ responses to identified or suspected fraud, underlining the need for timely and clear communication with management and boards about fraud.

Ethics

The IAASB and the International Ethics Standards Board for Accountants (IESBA) have established technical expert groups to advise on global implementation of their sustainability standards. IESBA’s IESSA implementation monitoring advisory group will focus on the International Ethics Standards for Sustainability Assurance (IESSA) and revisions to the IESBA code for sustainability reporting, while the IAASB now has a technical implementation contact group to advise on its ISSA 5000 standard.

Financial reporting

The International Accounting Standards Board (IASB) has requested feedback for a post-implementation review of IFRS 16, Leases, to ensure it helps improve information that companies provide about their leasing arrangements.

The IASB has also issued a revised practice statement boosting improvements and global alignment on management commentaries accompanying financial statements. It is designed to help companies meet investors’ information needs, including integrating advice from financial and sustainability reporting in commentaries.