It is important to stay updated on the latest standards. For accountants and financial professionals, the International Financial Reporting Standards (IFRS) play a role in ensuring that relevant information is disclosed in a standard that is recognised across several countries.
In this article, we will explore IFRS S1 and IFRS S2, which are two standards introduced by the International Sustainability Standards Board (ISSB) to address disclosures related to sustainability.
IFRS S1 and IFRS S2, also known as "General Requirements for Disclosure of Sustainability related Financial Information" and "Climate related Disclosures" respectively, is part of the ISSB's goal to enhance the transparency in sustainability-related data in financial reports.
These standards have been designed to empower investors and creditors in making well-informed decisions regarding resource allocation to organisations.
Both IFRS S1 and IFRS S2 will be applicable for annual reporting starting from January 1, 2024, and financial reports based on these standards will come into effect in 2025. While the ISSB encourages companies to adopt these standards voluntarily, it will be up to countries themselves to determine whether both standards will be mandatory in the future.
In Australia, the Australian Accounting Standards Board is using IFRS S1 and IFRS S2 to develop the Australian Sustainability Reporting Standards. These standards are still in development and are open for comment till 1 March 2024.
The primary objective of IFRS S1 is to encourage businesses to disclose information about sustainability-related risks and opportunities. This disclosure will prove valuable to those who use general-purpose financial reports, aiding them in resource allocation decisions like if they should invest in a business. Sustainability-related risks and opportunities will include factors that could be expected to affect an organisation’s cash flows, access to finance, or cost of capital.
Let’s take a look at the main elements of IFRS S1 set to be enacted on 1 January 2024:
IFRS S2, also referred to as the "Climate related Disclosures," aims to ensure that organisations disclose relevant information regarding risks and opportunities linked to climate change. This disclosure is for individuals who rely on general financial reports to make informed decisions such as whether or not to invest in a business.
Let’s take a look at the main components of IFRS S2 and how it differs to IFRS S1:
With the introduction of IFRS S1 and IFRS S2, there should be a lot more transparency with regards to sustainability.
Here are some important suggestions for organisations:
IFRS S1 and IFRS S2 represent a significant step towards providing useful information about sustainability-related risks and opportunities.
As they become an integral part of financial reporting, accountants and financial professionals need to be well-versed in these standards to ensure compliance and transparency in an increasingly sustainable world.
To prepare for your IFRS S1 & S2 reporting, you should consider using QuickBooks. QuickBooks allows you to collect and manage your financial data, which can help you prepare for your sustainability-related disclosures. Sign up to QuickBooks Online Accountant today and streamline your financial reporting processes.
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