Clarity in corporate reporting – January & February 2025 monthly newsletter

Understand the assurance timeline for sustainability reports in the first years of mandatory sustainability reporting

In late January 2025, the Auditing and Assurance Standards Board (AUASB) finalised a number of sustainability assurance standards, including ASSA 5010 Timeline for Audits and Reviews in Sustainability Reports under the Corporations Act 2001 (ASSA 5010).

ASSA 5010 contains the timeline of when various parts of a mandatory sustainability report prepared under the Corporations Act 2001 require assurance. The finalised standard contains some differences from the original proposals and the phasing depends on which group an entity is in and its year end.

In summary, the assurance phasing is:

• Partial limited assurance in first year of reporting. In an entity’s first year of reporting, limited assurance (equivalent to a review) will be required over the governance disclosures, strategy and scope 1 and 2 emissions. Assurance over strategy would be limited to the identification of climate-related risks and opportunities (i.e. subparagraphs 9(a), 10(a) and 10(b) of AASB S2 Climate-related Disclosures). The AUASB clarified these assurance boundaries when finalising the standard
• Full limited assurance in years 2 and 3. Limited assurance over the entire sustainability report will be required for an entity’s second and third years of reporting. The AUASB simplified and extended the original phasing proposals that would have otherwise required full assurance over scope 1 and 2 emissions in these periods
• Full reasonable assurance from year 4 onwards. Reasonable assurance (equivalent to an audit) will be required over the entire sustainability report. For ’Group 3’ entities, this will coincide with the mandatory full assurance requirements coming into place from 1 July 2030 under the Corporations Act 2001.

Each year of phasing under the standard is linked to and ends on 30 June. This means that ‘Group 1’ entities with financial years commencing between 1 January and 30 June will have an additional year of partial limited assurance – essentially these entities will have two “first years”. For the avoidance of doubt, this means that, for example, a ‘Group 1’ entity with a December year end will not require any assurance over scope 3 emissions (and many other parts of the sustainability report) in its second sustainability report at December 2026.

For more information, see our Clarity publication A new era of sustainability reporting. An update to this publication will be released shortly.

IASB finalises amendments on contracts that reference nature-dependent electricity

In December 2024, the IASB finalised amendments to IFRS 9 Financial Instruments (IFRS 9) and IFRS 7 Financial Instruments: Disclosures (IFRS 7).

The amendments apply to contracts referencing nature-dependent electricity (often structured as power purchase agreements). These contracts are characterised by contractual features exposing an entity to variability in the underlying amount of electricity because the electricity is generated from a source dependent on uncontrollable natural conditions (e.g. weather).

The amendments clarify the application of the ‘own-use’ requirements in IFRS 9. Furthermore, under the amendments, entities will be permitted to adopt hedge accounting if nature-dependent electricity contracts are used as hedging instruments (provided the criteria for hedge accounting are met). The amendments also introduce new disclosure requirements into IFRS 7 in relation to these contracts. 

The amendments are applicable for annual reporting periods beginning on or after 1 January 2026, with earlier application permitted. Some of the amendments require retrospective application (the own-use exemption) and others require prospective application (the hedge accounting requirements).

The AASB has issued an equivalent Amending Standard; therefore, these amendments should be applied in Australia accordingly.  For Tier 1 financial statements, disclosure of the impact of the amendments should be made prior to their application where the amendments may have a material impact.

More information:

• AASB 2025-1 Amendments to Australian Accounting Standards – Contracts Referencing Nature-dependent Electricity
• IASB media release IASB updates IFRS Accounting Standards for nature-dependent electricity contracts
• iGAAP in Focus IASB finalises amendments to IFRS 9 and IFRS 7 regarding power purchase agreements.

ASIC releases financial reporting focus areas for 31 December 2024

As ASIC has released its focus areas for December 2024 financial reports. Consistent with expectations, specific focus areas for December 2024 include:

• Non-lodgement of financial reports (including for previously grandfathered proprietary companies)
• Compliance with the new consolidated entity disclosure statement requirements
• New financial reporting requirements under the Corporations Act 2001 for registrable superannuation entities
• Auditors’ compliance with independence and conflicts of interest obligations.

ASIC is also encouraging entities to prepare for mandatory sustainability and climate reporting, which applies from 1 January 2025 for 'Group 1' entities.

The enduring focus areas remain - impairment and asset values, provisions, subsequent events, and disclosures in the financial report and Operating and Financial Review (OFR).

More information:

• ASIC media release ASIC highlights focus areas for 31 December 2024 financial reports
• ASIC resource Financial reporting and audit focus areas
• ASIC report Oversight of financial reporting and audit 2023-2024.

Confirmation of substantive enactment of Pillar Two legislation

Australia’s Pillar Two rules were registered on 23 December 2024 and accordingly, Pillar Two legislation is substantively enacted in Australia from that date. 

Broadly, Pillar Two covers entities with annual global income of EUR 750 million (approximately A$1.2 billion) or greater and apply to income years commencing on or after 1 January 2024. Accordingly, full-year and half-year financial reports at 31 December 2024 need to recognise any current tax arising under Pillar Two. Entities exceeding the global income threshold may wish to provide additional disclosure about the impact of Pillar Two - even where there is no current tax impact. 

For more information, see Clarity publication Responding to Pillar Two.

New Clarity publications on NSW climate legislation and IPOs

NSW climate legislation

New South Wales (NSW) is the first state to mandate climate disclosures for public sector entities, aligned with Australian Sustainability Reporting Standards (ASRS), effective from 2024-25. We have released a Clarity publication, which focuses on NSW Treasury’s TPG24-33 Reporting framework for first year climate-related financial disclosures.

IPOs

Initial public offerings (IPOs) are often undertaken in conjunction with corporate restructures or other transactions. The accounting for such transactions can be, and often are, very complex. We have issued an updated publication, which highlights some of the key financial reporting issues to consider during an IPO process.

November/December 2024 CRU recording available

We have made the recording of our December 2024 Corporate Reporting Update (CRU) available on our website. The recording of the session and the presentation slides are also available to download.

This content will assist in understanding important developments in corporate reporting, including sustainability reporting, new standards and amendments, key regulatory priorities and more.

Treasury consultation on merging AASB/AUASB/FRC

Treasury has released a consultation paper discussing the proposed merger of the Financial Reporting Council (FRC), Australian Accounting Standards Board (AASB) and the Auditing and Assurance Standards Board (AUASB).

The proposals are similar to the approach in New Zealand with a single board that delegates standard-setting functions to committees: one for audit, one for financial reporting and one for sustainability (with the ability for further committees as needed).

The consultation paper is open for comment until 21 February 2025.

Climate-related limited liability provisions to be extended

As part of the implementation of mandatory sustainability reporting in Australia, the enabling legislation introduced a temporary “modified liability” framework designed to allow entities and auditors sufficient time to develop capabilities to be able to adequately report in accordance with the requirements of the standards.

The provisions provide limited liability for the first three years of the regime in respect of certain aspects of sustainability reporting, including scope 3 emissions, scenario analysis and transition plans.

In January 2025, Treasury released a consultation paper on extending the scope of the limited liability to:

• Entities preparing voluntary sustainability reports in accordance with the requirements of the Corporations Act 2001 before they are mandatorily required to do so
• Entities complying with ASIC instruments dealing with sustainability reporting (such as was proposed by ASIC in relation to stapled entities).

ISSB to fast-track amendments to IFRS S2

The ISSB decided at its January 2025 meeting to fast-track an exposure draft of proposed amendments to IFRS S2 Climate-related Disclosures to address a number of application challenges previously discussed by the Transition Implementation Group on IFRS S1 and IFRS S2. 

The proposed changes include scope exemptions from Scope 3 emissions reporting for derivatives, facilitated emissions (from investment banking activities) and insurance-associated emissions (from underwriting activities), and the use of alternatives to the latest global warming potential (GWP) values, GHG Protocol and Global Industry Classification Standard (GICS) where required by a jurisdictional authority or exchange (or, in the case of GICS, where not used by the entity in disaggregating financed emissions).

The exposure draft is expected to be released in the second quarter of 2025 and is expected to have a 60 day comment period. The ISSB intends to make any finalised amendments effective as soon as possible and permit early application.