2022-02-14-KPMG_Global-Climate-related_risks_Financial_reporting_impacts_6页_508kb

IFRS Today: Climate-related Risks – Summary

Core Content

This document provides insights from KPMG experts on how climate-related risks may affect financial reporting under IFRS standards. It covers various areas such as inventory valuation, employee benefits, government assistance, and lease accounting, with the aim of helping businesses identify and address potential financial statement impacts.

Main Speakers and Topics

• Reinhard Dotzlaw – Global IFRS leader at KPMG in Canada
• Kim Heng – Partner at KPMG in Australia
• Anthony Voigt – Director at KPMG International Standards Group
• Agnieszka Sekita – Director at KPMG International Standards Group
• Mahesh Narayanasami – Partner at KPMG US
• Irina Ipatova – Director at KPMG International Standards Group
• Brian O'Donovan – Partner at KPMG International Standards Group

Key Topics and Insights

1. Climate-related Risks and Financial Statements

• COP26 and ISSB: The International Sustainability Standards Board (ISSB) was created at COP26 and is expected to release proposals for IFRS Sustainability Disclosure Standards.
• Materiality: Even if there is no direct financial impact, climate-related information may still be material and required for disclosure.
• Fair Presentation: Companies must ensure that disclosures of climate-related matters are relevant and provide a fair presentation of financial statements.

2. Inventory Impacts

• Increased Costs: Companies may face increased inventory costs due to ESG-related measures such as carbon taxes and material substitutions.
• Inventory Obsolescence: Climate-related changes can lead to decreased demand and inventory obsolescence.
• Recommendations:
  • Stay informed about relevant legislation.
  • Review NRV calculations for climate-related impacts.
  • Consider including new costs in inventory valuation.

3. Employee Benefit Arrangements

• Climate-related Performance Criteria: Some companies are incorporating ESG targets into employee incentives.
• Changes in Arrangements: Climate-related risks may lead to changes in employee benefit structures, such as site closures or restructurings.
• Recommendations:
  • Understand the accounting for such arrangements.
  • Assess the impact of climate-related risks on plan assets.
  • Ensure consistency between disclosures and financial statements.

4. Green Loans and SPPI Criterion

• SPPI Criterion: Loans with ESG features may not meet the SPPI (solely payments of principal and interest) criterion, which affects their classification and measurement.
• Impact on Financial Statements: If SPPI is not met, loans must be measured at fair value through profit or loss.
• Recommendations:
  • Evaluate the nature and type of ESG loans.
  • Assess whether interest adjustments meet the SPPI criterion.
  • Provide disclosures for significant judgements in SPPI assessments.

5. Government Assistance

• Types of Assistance: Governments offer various forms of support such as emissions certificates, forgivable loans, and tax credits.
• Accounting Considerations: A company must determine if the assistance qualifies as a government grant and how to measure and present it.
• Recommendations:
  • Assess whether the assistance meets the definition of a government grant.
  • Determine the expenses the grant is intended to compensate.
  • Measure and present the grant appropriately in financial statements.

6. Lease Accounting and Climate Risks

• Lessors' Exposure: Companies that lease assets are exposed to climate-related risks similar to their lessees.
• Accounting Impacts: Risks may affect valuation, impairment, income recognition, and lease modifications.
• Recommendations:
  • Identify lease arrangements likely to be impacted by climate-related risks.
  • Evaluate the impact on accounting systems and processes.
  • Provide clear and robust disclosures of key judgements and estimates.

Conclusion

The document highlights the growing importance of climate-related disclosures in financial reporting and the need for companies to proactively address these issues. KPMG has developed a resource center with detailed articles and FAQs to help preparers understand and manage the reporting impacts of climate-related risks. Companies are encouraged to review their financial statements and disclosures in light of these considerations and to seek professional advice when necessary.