IFRS S1 – Sustainability Disclosure Standard – Sustainability related Financial Information Disclosure Requirements.

 

 

 

 

Curated by:  CK Saikumar
Date: 14-Oct-2024

 

IFRS S1 – General Requirements for Disclosure of Sustainability related financial information was issued by International Sustainability Standards Board (ISSB). IFRS S1, represents a significant development in the field of sustainability reporting. This particular standard covers conceptual foundations, core content that includes metrics, and general requirements. This standard also covers the uncertainty measurements, error in reporting and judgements.

Readers are strongly encouraged to read relevant topic in standard documents for more detailed notes and guidance issued by ISSB for this standard.

 

Objective of IFRS S1:

 

 

The objective of IFRS S1 is to disclose information related to risks and opportunities of sustainability which makes the users of general information to take learned decisions in terms of providing resources. Information on risks and opportunities are imperative for an organisation to drive up the value chain. Each stakeholder of the entity are interdependent and therefore value that information on risk and opportunities.

Entities must disclose information that are related to sustainability-related risks and opportunities that could be expected to impact the cashflows of the company. Therefore, this standard prescribes the ways in which the sustainability- related financial disclosures so that they are useful for the users in their decision making on investment or provision of resources to the organisation.

 

Scope:

 

This standard must be implemented by entities for preparing and reporting the sustainability – related financial information applying related standards and those events which does not impact the prospects of the company are out of the ambit of this standard. Each sustainability- related disclosure standards prescribe the methods of how each risk and opportunities are to be presented / disclosed.

Most important point to be noted here is, IFRS Sustainability Disclosure Standards (IFRS SDS) must be adopted in true letter and spirit even if the general-purpose financial statements are NOT prepared and presented in accordance with IFRS Accounting Standards or GAAP.

 

Conceptual Foundations:

 

The basic concept of Sustainability- related financial statement is to be useful therefore it must be relevant and faithfully represented. These two characteristics are considered as qualitative characteristics. However, these information gets accentuated when they are verifiable, comparable, understandable and timely.

 

General Guide for Source of Risk and Information:

 

How to identify what to disclose under sustainability-related risks and opportunities?

This standard sets down various other disclosure standards as general guide. Like,

 

• Norms laid down by The Sustainability Accounting Standards Board (SASB) Standards and its applicability,
• Guidelines laid down by Climate Disclosure Standards Board (CDSB) for water related, bio-diversity disclosures,
• Other frameworks that are practiced for disclosure, and 
• Standards and frameworks that are adopted and adhered by the industry in which the entity operates.

 

The location of disclosure under the IFRS SDS should be part of its general-purpose financial statement. Regulators of some countries has mandated that entities add management commentary or statement or response as part of the disclosure.

Entities are expected to prepare the sustainability- related financial disclosures at the same time as that of general-purpose financial statements. The term is 12- month period and there is no requirement to change this reporting period. However, if there is a change in the company’s reporting period then there is a need for substantiating the reason for longer- period or shorter- period of disclosure.

Another important requirement under IFRS SDS is its requirement to provide comparative information in respect of preceding period. This disclosure includes the financial information both narrative and descriptive statements.

 

Importance of IFRS S1:

 

IFRS SDS makes it mandatory on every entity to disclose its sustainability- related financial disclosures explicitly and with out any reservation on compliance to its standards. Entities must confirm only when they truthfully comply with the standards. In case of non-compliance the entities are expected to be candid in their disclosures.

This standard brings out challenges in terms of measuring sustainability- related financial disclosures.

Approaches such as assumptions, measurement and judgements used for measuring the financial risks and opportunities, this may not be fool-proof and is qualitative.

Allows entities to highlight the errors in judgement or measurement and to restate those errors for current period as well as the past period depending upon the period of the error in reporting.

The IFRS SDS (S1) standard is exhaustive and this 40+ page document needs to be consumed well by all financial and management accountants to implement with immediate effect.

IFRS SDS (S1) forms part of testing in the forthcoming examinations conducted by professional statutory bodies like AICPA-CIMA. This is expected to be done in order to get future accountants up to speed in terms of understanding the need to comply with standards at their place of employment or business. Sustainability Reporting is now considered as integrated reporting by companies and they same is dealt at length as part of Management Accounting course.

AKONTZ offers CIMA – AICPA subjects such as F1 (Financial Reporting) and F2 ( Advanced Financial Reporting)