Close work between the constituent bodies of the International Financial Reporting Standards (IFRS) Foundation is vital for shaping high-quality reporting, according to the organisations’ leaders.
In a joint blog of 23 March, Andreas Barckow and Emmanuel Faber – respective chairs of the International Accounting Standards Board (IASB) and International Sustainability Standards Board (ISSB) – highlighted the benefits of ‘connectivity’ between the two bodies.
In particular, they noted, it provides a firm basis for report preparers to compile the most useful, relevant and insightful data for end users. With that in mind, the chairs also heralded forthcoming efforts to explore how that collaboration can be honed and refined.
Barckow and Faber defined connectivity as a workflow that plays out across three stages, involving not just their organisations, but – in the final stage – their stakeholders, too:
- Process: IASB and ISSB decision-makers work together at staff and board level, under the guidance of advisory bodies that help to inform both boards.
- Products: Their work produces compatible concepts – in the form of new accounting and sustainability-related Standards, and the digital taxonomies required to apply them – which are free of gaps or unintended overlaps.
- Reporting: Those standards and taxonomies then enable preparers to compile general-purpose financial reports that are holistic, comprehensive and coherent in nature.
In Barckow and Faber’s assessment, sustainability-related financial disclosures and financial statements complement each other. Typically, the former may explain sustainability-related risks and opportunities arising from an entity’s activities, plus its assets and liabilities. But those disclosures may also provide early indications of matters that will subsequently be reflected in financial statements.
For example, a company’s commitment to net zero emissions could, in time, result in a need for that business to report liabilities in its financial statements.
In light of those factors, investors need general purpose financial reports to provide them with a holistic, comprehensive and coherent picture of how a company operates. As such, Barckow and Faber wrote: “They want to understand how matters reported in financial statements and in sustainability-related financial disclosures are connected.”
To achieve connectivity in their products, the chairs noted, the two bodies are building it into their processes. “We have established practices to facilitate knowledge sharing and coordination between the IASB and the ISSB,” they wrote. “For example, the boards and staff regularly update each other on their activities during and between public board meetings.
“Engagement between the boards and staff enables us to identify and address common issues and … opportunities to use common language and concepts. This engagement includes staff of one board working on projects of the other board when relevant.”
While there will be instances when it is appropriate for the two boards to consider technical issues together, connectivity in their products can be – and has been – achieved without joint board discussions.
Importantly, they wrote: “We are still in the early days of our connectivity journey – our work will evolve over time as we learn from each other and as the wider financial reporting ecosystem develops.”
In the interests of furthering that evolution, a forthcoming ISSB consultation will ask stakeholders for feedback on the board’s work plan priorities – including activities to support connectivity.
One question the exercise will look into is whether the ISSB should undertake a project to move beyond simply connecting information in financial statements and sustainability-related financial disclosures to closer integration in reporting.
The consultation will also ask stakeholders how such a project could be undertaken.
“For example,” the chairs explained, “depending on the feedback that the ISSB receives on its work and priorities, this could be a joint project between the two boards and it could build on the IASB’s Exposure Draft: Management Commentary and/or the Integrated Reporting Framework, which has been a joint responsibility of the IASB and the ISSB since the IFRS Foundation consolidated with the Value Reporting Foundation in 2022.”
ICAEW Director, Audit and Corporate Reporting, Nigel Sleigh-Johnson said: “The establishment of the ISSB to operate alongside the IASB has been one of the most significant developments in corporate reporting standard-setting in recent years. Considerable effort has been made across the IFRS Foundation to put in place the appropriate structures for the new board to start work, and at an impressive pace. This is no mean feat, and we applaud the work that has taken place so far.”
He added: “Having achieved so much in such a short time, and with so much at stake, the focus of the boards and all stakeholders in the corporate reporting ecosystem must now be on making this historic global project a success. ICAEW believes that ensuring a high level of interconnectivity between the two boards and their governance is a precondition of that success. It is encouraging to see the ways the boards are already working together to develop connectivity and to ensure compatibility of their respective products. This way of working must become ingrained and routine as the ISSB’s structures mature and evolve.”
- Read more about this joint project.
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