Understandable

The International Sustainability Disclosure Standards – IFRS S1 and IFRS S2 – Best read

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The International Sustainability Disclosure Standards – IFRS S1 and IFRS S2

On 26 June 2023 the International Sustainability Standards Board (ISSB) released its first two International Sustainability Disclosure Standards (IFRS SDS or the Standards) that become effective for periods beginning on or after 1 January 2024. Together they mark the start of a new era of requiring companies to make sustainability-related disclosures.

The ISSB was launched by the IFRS Foundation at COP26 with the aim of improving the consistency and quality of sustainability reporting across the globe, by matching the importance of sustainability reporting with the current regulations around financial reporting. To reinforce this message, the ISSB sits alongside the International Accounting Standards Board (IASB) and is overseen by the trustees of the IFRS Foundation and the Monitoring board.

The International Sustainability Disclosure Standards – IFRS S1 and IFRS S2

The ISSB brings together the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF), the name behind the Integrated Reporting Framework and the Sustainability Accounting Standards Board (SASB) Standards.

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Narrative reporting the right way

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Narrative reporting

– whether in the form of an Operating and Financial Review (OFR), Management Discussion and Analysis (MD&A), a Business Review or other management commentary – is vital to corporate transparency. Key performance indicators (KPIs), both financial and non-financial, are an important component of the information needed to explain a company’s progress towards its stated goals, for all of these types of narrative reporting.

But despite this fact, KPIs are not well understood. What makes a performance indicator “key”? What type of information should be provided for each indicator? And how can it best be presented to provide effective narrative business reporting?

Setting the stage – two quotes

Although narrative reporting requirements remain fluid, reporting on KPIs is here to stay. I welcome any publication as a valuable contribution to helping companies choose which KPIs to report and what information will provide investors with a real understanding of corporate performance. Using management’s own measures of success really helps deepen investors’ understanding of progress and movement in business. Whether contextual, financial or non-financial, these data points make the trends in the business transparent and help keep management accountable. The illustrations of good practice reporting on KPIs shown here bring alive what is required in a practical and effective way.

KPIs – a critical component

Regulatory environment

The specific requirements for narrative reporting have been a point of debate for several years now. However one certainty remains: the requirement to report financial and non-financial key performance indicators.

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Enhancing qualitative characteristic

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Comparability, verifiability, timeliness and understand-ability are qualitative characteristics that enhance the usefulness of information that both is relevant and provides a faithful representation of what it purports to represent. The enhancing qualitative characteristics may also help determine which of two ways should be used to depict a phenomenon if both are considered to provide equally relevant information and an equally faithful representation of that phenomenon.

Presentation and disclosure

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Presentation and disclosure are the terms used to describe how information about assets, liabilities, equity, income and expenses is provided in the accounts.

Qualitative characteristic

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Qualitative characteristic is a characteristic that makes financial information more useful to the primary users of general purpose financial reports.

Understandability

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Understandability in accounting information implies clarity. Companies must follow standard accounting principles in order to properly report business transactions. If a company fails to do so, then stakeholders are typically unable to follow the company’s accounting information. Essentially, companies that report financial information in their own specific manner strip away understandability and the ability to understand financial reporting.

Reclassification adjustments

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With an increase in the use of fair value measurement in the financial position, there was a need to separate realised gains and losses from unrealised gains and loss. Realised gains and losses (using accrual accounting) are include in profit or loss. Unrealised gains and losses in other comprehensive income.

Presentation Insurance contracts

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Presentation Insurance contractsPresentation Insurance contracts – IFRS 17 specifies minimum amounts of information that need to be presented on the face of the statement of financial position and statement of financial performance. These are supplemented by disclosures to explain the amounts recognized on the face of the primary financial statements (see ‘Disclosure of Insurance contracts’).

IFRS 17 requires separate presentation of amounts relating to insurance contracts issued and reinsurance contracts held in the primary statements. There is nothing to prevent an entity from providing further sub-analysis of the required line items (which may make the relationship of the reconciliations to the face of the statement of financial position more understandable).

Indeed, IAS 1 Presentation of Financial Statements requires presentation of additional line … Read more