KPMG and IASB highlight growing role of climate risk in financial reporting

IASB publishes examples of ‘the effects of uncertainty’ while KPMG tells firms to ‘be clear on climate’ in impairment calculations

KPMG has urged companies to “be clear climate” when reporting on their cash flows and asset valuations.

The auditing giant has just published guidance on how to consider climate risks and opportunities when disclosing impairments under international accounting standard IAS 36.

Impairments are reductions in the value of assets on the balance sheet, to reflect an irreversible decline in their quality, quantity or market valuation.

“Your company’s strategic response to climate-related risks and opportunities – whether to act or not – may impact your cash flows in the short, medium or longer term and the value of your assets,” the guidance notes.

“A company [therefore] needs to consider the effect of climate-related matters on impairment testing.”

It goes on to say that the indicators specified in IAS 36, which is produced by the IFRS Foundation, “may be triggered by climate-related and other factors”.

These include shifts in consumer demand for sustainable products, changes in law that impose costs on polluting activities, and voluntary commitments to swap unsustainable business practices for pricier sustainable ones.

Damage caused to assets from extreme weather events and rising temperatures are also covered.

The report provides a series of hypothetical examples of companies that may have impairment issues related to climate.

It comes as the International Accounting Standards Board (IASB) publishes its final list of illustrative examples “demonstrating how companies can apply IFRS Accounting Standards when reporting the effects of uncertainties in their financial statements”.

“Stakeholders told the IASB that the information companies provide about the effects of uncertainties is sometimes insufficient or appears inconsistent with the information provided outside their financial statements,” said the body in a statement.

While the document does not include the world ‘climate’ in its title, all the examples are based on climate-related scenarios.

IASB said the document was not a mandatory update to the rules, but “companies would be expected to implement any change in their reporting on a timely basis”.