Financial statement disclosure of climate-related and other emerging risks

If you are a director or financial statements preparer in an industry impacted by climate-related risks, guidance has been issued which indicates that climate-related risks are a financial statement consideration, not just a matter of corporate social responsibility.

The Australian Accounting Standards Board has issued a Practice Statement (AASB Practice Statement 2 – Making Materiality Judgements), which whilst not mandatory, represents best practice on determining what climate-related risks are sufficiently material to be disclosed in financial statements.

Determination of the content of financial statements is based on an assessment of what is material to users of the financial statements. Given investor statements on the importance of climate-related risks to their decision making, directors and preparers need to ensure financial statements are prepared with climate-related risks in mind.

Key recommendations are:

• Determine whether investors would reasonably expect that climate-related risks have a significant impact on the entity and would that risk qualitatively influence investors decisions?
• Disclose climate-related risks and adjust balances accordingly, if necessary, in the financial statements.
• If no climate-related risk impacts have been disclosed, consider disclosing why there has been no impact, if it is believed that investors could have expected climate-related risks to be significant.

For more information on your reporting obligations, talk to your adviser today, and they can introduce you to a financial reporting expert.