Sustainability Reporting and Accounting Standards

Sustainability Reporting

• Accounting Profession (AP) has significant experience in materiality assessment, crucial for user decisions in sustainability reporting (SR).
• Consolidation of existing sustainability reporting frameworks began after the AP's formal involvement, reducing confusion.
• The AP's historical role in financial statement assurance translates to a valuable SR assurance experience. Trust in SR information is as important as trust in financial accounting.
• The AP's established standard-setting process can be applied to SR standards.
• The International Organization of Securities Commissions (IOSCO) recommended incorporating regulation for SR reporting, recognizing the importance of regulation to encourage usage, instead of relying on voluntary adoption.
• SR is essential for sustainable businesses and economies and a sustainable planet – aligning with the AP's public interest objective.

Book Value vs. Market Value (Intangibles)

• Maintaining consistency in adjusting book values to market values presents challenges.
• Concerns exist about the widening gap between book and market values.
• Consideration of bringing more intangibles onto the balance sheet is required.
• The potential for estimation error is a concern, particularly when estimating firm-wide or intangible asset market values (e.g., brands, R&D).
• Exploring potential journal entries for such adjustments is necessary.
• Disclosure as an alternative to recognition (within or outside financial statements) needs consideration.
• Auditor concerns about market value estimations are significant.
• Financial statements do not need to provide all potential information, but disclosure should be relevant and trustworthy.

Non-GAAP Reporting

• The concept of multiple income statements within financial statements is a topic of debate.
• Income measurement is a socially constructed process, not a factual "discovery."
• Non-GAAP earnings' value relevance versus perception management is contested.
• There's no limit on non-GAAP adjustments.
• The question of regulation between regulators (like SOX) and professional bodies needs addressing.
• IFRS 18 is a relevant framework for understanding and applying non-GAAP earnings.
• New standards for operating income are under discussion, as non-GAAP earnings typically aim to measure operating income.
• Professional bodies are now implementing controls on non-GAAP reporting.
• An audit of non-GAAP reporting enhances trust and credibility.
• Auditors experience concerns about auditing specific items (e.g., "one-time" items) in non-GAAP earnings.
• Disclosure of alternative performance measures will be presented in the notes.