Introduction to Corporate Reporting

Question 1

Requirement for an audit

Answer 1

The basic principle is that all companies registered in the UK
should be audited. However, companies qualifying as small
are granted an exemption. To qualify as small, the company
must meet at least two of the following criteria for periods
beginning on or after 1 January 2016:
 Annual turnover must be £10.2 million or less.
 The gross asset total must be £5.1 million or less.
 The average number of employees must be 50 or fewer.
At least two of the three conditions must be met and for two consecutive
years.
Some companies must have an audit even if they meet the criteria for exemption,
notably insurance companies, banks, plcs and where shareholders owning at least
10% of the shares ask for an audit.

Question 2

Sustainability

Answer 2

The technical definition of sustainability comes from the 1987
Brundtland report, and is defined as development that ‘meets the needs
of the present without compromising the ability of future generations to
meet their own needs’.

Transition risks are those associated with moving to a lower-carbon
economy due to extensive policy, legal, technology, and market changes.

Physical risks represent the tangible negative effects of climate change,
which may be acute or chronic.
Acute physical risks are caused by a particular event including extreme
weather such as hurricanes, floods and heat waves.
Chronic physical risks are caused by shifts in climate patterns e.g.
sustained higher temperatures, sea level rise and changing precipitation
patterns.

Double materiality:
Consideration of not only the sustainability issues
that might create financial risks for the company (financial materiality),
but also those sustainability issues where a company’s activities
materially impact on people and the environment (impact materiality).

Question 3

The International Sustainability Standards Board (ISSB): Objectives of the ISSB:

Answer 3

 develop standards for sustainability disclosures
 meet investors’ information needs
 enable companies to provide comprehensive sustainability information
 facilitate interoperability for jurisdiction-specific disclosures or disclosures aimed
at broader stakeholder groups
– In effect this means that the ISSB will provide a baseline for disclosures in
the sustainability disclosure standards, which can then be tailored for
specific countries or users

Question 4

ISSB responsibilities:

Answer 4

developing a set of sustainability disclosure standards (IFRS Sustainability
Disclosure Standards) which complement IFRS Accounting Standards, covering
environmental, social and governance (ESG) sustainability topics with an urgent
focus on climate-related matters.

Question 5

4.3 IFRS Sustainability Disclosure Standards

Answer 5

The first standards were issued in June 2023 and aim to provide users with reliable,
comparable sustainability-related information. Sustainability Standards can be
adopted by any listed or private company on a voluntary basis but there is currently
no mandatory requirement to apply the standards. The IFRS Sustainability Disclosure Standards require the disclosure of material information about the sustainability risks and opportunities that the entity is exposed
to. Sustainability-related risks and opportunities arise through an entity’s dependencies
and impacts:

Impacts
i.e. the effect of the organisation
How the decisions and actions of an organisation positively and negatively affect environmental, social and governance (ESG) issues.
Examples:
– Human rights
– Worker rights
– Health and safety
– Carbon emissions
– Scarce natural resources
– Endangered species.

Dependencies
i.e. the effect on the organisation
How environmental, social and governance (ESG) issues can affect the organisation’s ability to create and maintain value.
Examples:
– Employee welfare
– Environmental pollution and change
– Employee know-how
– Supplier and customer relationships

Question 6

IFRS S1 General Requirements for Disclosure of Sustainability-related
Financial Information

Answer 6

Requires companies to:
 identify, disclose and measure the widening spectrum of sustainability issues
that could affect performance.
 identify a complete and valid set of sustainability-related risks and opportunities
for effective monitoring and reporting.
 select appropriate metrics and targets for sustainability reporting.
The disclosures should only include information that is material and consistent with
the Conceptual Framework’s principles of relevance and faithful representation.

Question 7

IFRS S2 Climate-related Disclosures

Answer 7

Requires companies to:
 disclose physical and transition risks and their potential impact on the move
towards a low carbon economy
 select appropriate metrics and targets for climate-related reporting, including the
disclosure of the amount of greenhouse gas emissions.
The disclosures should only include information that is material and consistent with
the Conceptual Framework’s principles of relevance and faithful representation.