The IASB last year issued Climate-related and Other Uncertainties in the Financial Statements, an exposure draft of proposed illustrative examples.

The exposure draft proposed “eight examples illustrating how an entity applies the requirements in IFRS Accounting Standards to report the effects of climate-related and other uncertainties in its financial statements (in the expectation) that these illustrative examples will help to improve the reporting of the effects of climate-related and other uncertainties in the financial statements, including by helping to strengthen connections between an entity’s general purpose financial reports.” The IASB plans to issue the finalized examples in October 2025, but recently issued a near-final staff draft of what’s coming; this was made available “to give entities early sight of the examples expected to be issued in October 2025.” It’s noted that the content of the examples “is subject to change, but the staff does not expect significant changes before the IASB issues them” (some may think that this is a touch too much transparency and process, and that it should have been possible one way or another to avoid issuing a “near-final” and then an actual final version within a few months of each other, especially as the IASB doesn’t intend to be breaking new conceptual ground here).

There are now just six examples: two of the examples in the exposure draft have been combined. The one that’s gone related to the following fact pattern:

• The entity operates in a jurisdiction whose government has announced regulation that would restrict the entity’s ability to operate and generate profits in that jurisdiction in the future. The announced regulation does not relate to taxation. However, the regulation could significantly affect the entity’s profitability and, therefore, its ability to recover the carrying amount of its deferred tax asset for the carryforward of unused tax losses.
• The regulation has not yet been enacted at the end of the reporting period. It is uncertain when the announced regulation would be effective. The government has stated that, because of other priorities, it will not discuss the regulation further in the next two years, a period that extends beyond the end of the entity’s next financial year.

In the exposure draft example, the entity concludes it is required to recognize the deferred tax asset for the full amount of its carryforward of unused tax losses on the assumption that the regulation will become effective only after the entity has been able to utilize these losses, and that while paragraph IAS 1.125 doesn’t require additional disclosure regarding the underlying assumptions, this constitutes an example where compliance with the specific requirements in IFRS Accounting Standards is insufficient to enable users of financial statements to understand the effect of transactions and other events and conditions on the entity’s financial position and financial performance, and so additional disclosure is required under IAS 1.31. As summarized in a staff paper, “many respondents said the example’s fact pattern is unrealistic. Some of these respondents said it is implausible that a government would announce a regulation restricting an entity’s ability to operate without indicating when the regulation would take effect or without discussing it for a further two years.” The staff acknowledged this point, observing that “in most cases, an entity would expect there to be new information and new developments about an uncertain regulation in the next financial year and, therefore, paragraph 125 of IAS 1 could require disclosure about assumptions related to that uncertain regulation.” The IASB agreed, and deleted the example from the near-final draft.

I’d taken issue with another example, of an entity that “concludes that its (climate-related) transition plan has no effect on the recognition or measurement of its assets and liabilities and related income and expenses” and that the requirements of specific standards don’t require that it “disclose information about the effect (or lack of effect) of its transition plan on its financial position and financial performance.” In that case too, referring to IAS 1.31, the IASB indicated that the entity discloses that its transition plan has no effect on its financial position and financial performance and explains why; I commented here that I found it “a stretch to argue that IAS 1 inherently requires an entity to disclose information about the lack of effect’ of a climate-related transition plan that has had no impact on anything reported in the statements.” The near-final draft retains the basic example, but with a much-expanded discussion of the factors that might lead to such a conclusion, including entity-specific and external qualitative factors and a consideration of “whether, without additional disclosures, information in its financial statements might appear inconsistent with information about its transition plan in its general-purpose financial reports accompanying those financial statements. For example, information about the entity’s plans to change its manufacturing methods and invest in more energy-efficient technology might suggest that some of its assets might be impaired.” So that helps a bit.

The opinions expressed are solely those of the author.