As we addressed here, the International Sustainability Standards Board has issued its first two exposure drafts, General Sustainability-related Disclosures and Climate-related Disclosures, which were both open for comment until July 29, 2022.

The first document contains the following:

• The Exposure Draft sets out proposed requirements for comparative information, sources of estimation and outcome uncertainty, and errors. These proposals are based on corresponding concepts for financial statements contained in IAS 1 and IAS 8. However, rather than requiring a change in estimate to be reported as part of the current period disclosures, the Exposure Draft proposes that comparative information which reflects updated estimates be disclosed, except when this would be impracticable —ie the comparatives would be restated to reflect the better estimate.

The basis for conclusions explains:

• This requirement contrasts with how changes in estimates in financial statements are addressed. Normally, changes in estimates are recognized prospectively— that is, in the period of the change. Prospective recognition means the comparatives are not changed and the change in estimate is reflected in current period profit or loss. One of the main differences that led to requiring comparatives to be changed for sustainability-related financial information is that the metrics are not part of a double-entry model that affects reported equity. The nature of some sustainability-related metrics will require significant estimation. It was considered more useful to reflect changes in estimates that relate to prior periods through comparatives, rather than knowingly misstating the current period information.

KPMG, for one, didn’t agree with that reasoning:

• Although restating comparative information to reflect updated estimates as well as to correct errors would support the presentation of consistent trends across multiple periods, we are concerned that, as proposed, the requirement would place an undue burden on preparers to reconsider all estimates that could affect prior-year information. Inconsistencies may also arise where metrics incorporate both financial information (not updated) and sustainability information (updated).
• … we suggest not requiring an entity to disclose comparative information that reflects updated estimates. Instead, we recommend introducing a rebuttable presumption…that estimates in metrics and targets should not be updated retrospectively. This approach would limit the requirement for entities to recalculate and reassess all comparative information. If the presumption is rebutted – e.g. where the estimate would give rise to a material change (positive or negative) in a prior-year metric or the base period for a target, or if the restatement of comparatives gave rise to more useful information – then we believe the entity should explain why the estimate has been updated.

But if you ever imagine that accounting firms all see things in the same fussy way, BDO didn’t detect any such problems, saying they “consider it appropriate to depart from the principle in IAS 8 relating to changes in estimates because sustainability-related financial information differs from amounts recognized in accordance with financial accounting requirements.”

Many respondents urged some kind of middle way. This is from the Canadian Accounting Standards Board:

• we disagree that if an entity has a better measure of a metric reported in the prior year, that it should be required to disclose the revised metric in its comparatives. While we think there is value in assessing trends from one period to the next, we think that whether or not comparative information is to be restated should be based on the practical availability of the information required. Therefore, we recommend the ISSB consider allowing entities some leeway in assessing the value in and practicability of restating comparative information.

This is the Association of Chartered Certified Accountants:

• We recognize…that providing retrospective restatements can be a significant challenge, especially in relation to those disclosure requirements…which are new to preparers, and social-related disclosures for which quantitative measures and methodologies are emerging. During the transition period, the benefit of reliable comparative information needs to be balanced against the cost of retrospective restatement where more robust methodologies may be developing year-on-year. It is important not to discourage preparers from adopting more reliable measurements. The ISSB may wish to consider providing relief from retrospective restatement during the first years of implementation.

And then there’s the Institute of Management Accountants:

• We agree that restating previously issued estimates could impose a significant burden not only on preparers but also on their auditors. As a practical matter, retrospective restatement of previously issued estimates and reconsideration of assumptions require a reconsideration of the availability of information in the past. It also introduces liability to enterprises that in good faith relied upon information that was contemporaneously available. Restatements also jeopardize the full faith and trust in the sustainability reporting process. We note, however, that there is concern that in response to this risk, entities could use this as a means to issue generalized boilerplate disclosures that would evade meaningful updates.

We’ve already looked at various other areas in which commentators also made arguments for various kinds of relief and accommodation. As I said before, my own view is probably that the ISSB is best advised to focus on crafting standards that adequately address the broad ongoing demand for more consistent, complete, comparable and verifiable sustainability-related financial information, with local regulators then assessing the merit (whether on a company by company basis, or more broadly) of any requests for initial or ongoing relief….

The opinions expressed are solely those of the author