Many investors are seeking information about the potential impacts of climate-related risks across organisations. There is a need for consistent, comparable and reliable information about the effects of climate-related risks on businesses and financial reporting. The regulatory community has stepped up their efforts in this area. Recently, the U.S. Securities and Exchange Commission (SEC) on 21 March 2022 proposed rules on climate disclosure requirements. The proposals would require a domestic or a foreign registrant to include certain climate related information in its registration statements and periodic report such as Form 10-K. The proposals require disclosure of climate-related risks, and their actual or likely material impacts on a company’s business, strategy and outlook. There is a detailed deliberations on greenhouse gas emissions and a requirement that these disclosures to be subject to assurance. A company in its financial statements would need to include a note on certain climate-related financial statement metrics and provide related disclosures. All these disclosures would be subject to audit and within the scope of a company’s internal control over financial reporting. Additionally, disclosures will cover governance and management processes of a company with regard to these risks and seek information about climate-related targets and goals, and its transition plan. In this edition of Accounting and Auditing Update (AAU), we have summarised the key proposals issued by the SEC.

Also, the IFRS International Sustainability Standards Board (ISSB) will develop a comprehensive global baseline of high-quality sustainability disclosure standards which would focus on enterprise value. The ISSB is expected to shortly publish exposure drafts of proposed climate and general sustainability disclosure requirements. In another regulatory development on 14 March 2022, International Organization of Securities Commissions (IOSCO),, while releasing its Sustainable Finance work plan 2022, has highlighted that it plans to do a timely and thorough review of the soon-to-be-published ISSB exposure drafts, as well as the final standards when they are produced. Companies should watch out this space for further developments as standards are expected to be released at a fast pace.

Ind AS 16, Property, Plant and Equipment provides guidance on the accounting of Property, Plant and Equipment (PPE). Generally, for many companies PPE is a significant item on the balance sheet. Therefore, it is important that capitalisable costs are appropriately identified and the cost of the same is recognised over the period which reflects its utlisation for the financial performance to be reflective of the use of the PPE. Cost of an item of PPE includes its net purchase price (including taxes), directly attributable expenditure to bring it to its intended use and estimated restoration cost (where applicable). While identification of net purchase price may involve little judgement, identification of directly attributable expenditure requires a deeper understanding of the asset’s intended use and the nature of the expenditure. Therefore, in our article on this topic we have highlighted key principles from a recent Expert Advisory Committee (EAC) opinion on the topic of recognising directly attributable expenses to bring the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

As is the case each month, we have also included a regular round-up of some recent regulatory updates in India.