Would you be interested to know how the impacts of climate change are reported in financial statements?
All companies face climate-related risks and opportunities, with varying levels of impact. In today's era of unprecedented environmental challenges, the imperative for transparency regarding climate-related matters has surged. With climate change impacting various industries, investors and regulators now demand increased transparency and relevant information in the financial statements regarding how a company’s financial position and performance have been affected by climate-related challenges.
It is crucial for companies to deeply understand their business environments and operations to assess the potential impact of climate-related risks on their financial statements. The objective is to grasp both current and future challenges about climate risks.
Climate Change and Malaysian Financial Reporting Standards (MFRSs)
Currently, there is no specific MFRS dedicated to climate change. While climate-related risks are not covered explicitly by MFRSs, the accounting standards do encompass issues about them. Therefore, it is essential to reiterate the existing MFRSs concerning the reporting of climate-related matters in financial statements.
In July 2023, the IFRS Foundation republished its educational material “Effects of Climate-Related Matters on Financial Statements” to remind financial statement preparers to report on the effects of climate-related matters when those effects are material (in the context of the financial statements taken as a whole) in complying with the disclosure requirements of IFRS Standards (equivalent to MFRSs). The educational material highlighted a non-exhaustive list of IFRSs that may require companies to consider the effects of climate-related matters in applying the principles in the said accounting standards. The potential financial implications arising from climate-related risks may include, but are not limited to:
- Asset impairment
- Changes in the useful life of non-financial assets
- Changes in the valuation of assets
- Effects on impairment computations
- Creation of and changes in provisions for onerous contracts;
- Changes in provisions and contingent liabilities arising from fines and penalties
- Changes in expected credit losses for debt financial assets.
Please click to access Effects of Climate-Related Matters on Financial Statements on the International Accounting Standards Board (IASB) website.
