Clarity in financial reporting – July 2023 monthly newsletter

Most entities reporting under the Corporations Act 2001 will be affected by the latest Treasury consultation on mandatory climate-related financial reporting, with a four-year phase in from 2024-2025 financial years

The Federal Treasury has released a consultation paper outlining its finalised proposals for the implementation of mandatory climate-related financial disclosure requirements in Australia.

Below is a high-level summary of the proposals:

• Mandatory climate-related financial disclosures would be required, starting in 2024-2025 and phased in to the 2027-2028 financial year for entities meeting the prescribed thresholds
• Majority of entities reporting under Chapter 2M of the Corporations Act 2001 (i.e. disclosing entities, public companies, large proprietary companies, registered schemes and registerable superannuation entities) and all such entities reporting under the National Greenhouse and Energy Reporting Act 2007 (NGER) would be required to report for 2027-2028 and later financial years
• Disclosures are expected to be closely aligned with the IFRS Sustainability Disclosure Standards issued by the International Sustainability Standards Board (ISSB), with Australian equivalents to be set by the AASB considering Australian-specific requirements
• Disclosure would be included in an entity’s directors’ report and financial report (although a separate report may be provided in line with the requirements for those reports)
• Assurance would be phased in over a four-year period, with the scope and level of assurance increasing over that period
• The consultation paper is open for comment until 21 July 2023, with enabling legislation exposed prior to being implemented in line with the initial commencement date of 1 July 2024.

To understand Treasury’s proposals in more detail, read our Clarity publication Action now for mandatory climate reporting in Australia.

More information:

• Clarity publication Action now for mandatory climate reporting in Australia
• Treasury consultation paper Climate-related financial reporting.

Learn about the new standards which are likely to form the basis of mandatory Australian standards

The ISSB has published its first two IFRS Sustainability Disclosure Standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures.

IFRS S1 sets out overall requirements for sustainability-related financial disclosures with the objective to require an entity to disclose information about its sustainability-related risks and opportunities that is useful to primary users of general purpose financial reports in making decisions relating to providing resources to the entity.

IFRS S2 sets out the requirements for identifying, measuring and disclosing information about climate-related risks and opportunities that is useful to primary users of general purpose financial reports in making decisions relating to providing resources to the entity.

IFRS S1 and IFRS S2 are applicable for annual reporting periods beginning on or after 1 January 2024, with numerous transitional provisions available to assist entities with initial implementation.  For example, only climate-related disclosures are required in the first year, scope 3 greenhouse gas emissions are only required in the second year, and comparative information is not required in the first year (or the second year for scope 3 emissions).

More information:

• iGAAP in Focus ISSB publishes first IFRS Sustainability Disclosure Standards
• ISSB media release ISSB issues inaugural global sustainability disclosure standards
• IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information
• IFRS S2 Climate-related Disclosures.

Read our publication to understand and respond to ASIC’s focus areas

As noted in our June 2023 newsletter, ASIC released its June 2023 focus areas on 6 June 2023.  The release of the focus areas follows a series of media releases and speeches over recent months that together outline the broad corporate reporting topics that are front and centre for the regulator.

Organisations must respond to these developments by ensuring relevant topics are carefully considered, addressed and documented.

To assist with this process, read our Clarity publication Navigating ASIC’s regulatory expectations, which:

• Provides a summary of ASIC’s regulatory expectations
• Looks at the outcomes of ASIC’s surveillance over the past year
• Covers areas of particular emphasis for June 2023 corporate reports
• Includes an appendix of all ASIC focus areas and related topics.

More information:

• Clarity publication Navigating ASIC’s regulatory expectations
• ASIC media release 23-149MR ASIC highlights focus areas for 30 June 2023 reporting.

Our superannuation entity model financial report helps funds prepare for financial reporting under the Corporations Act 2001

On 21 June 2023, the Senate passed Treasury Laws Amendment (2002 Measures No.4) Bill 2022. The House of Representatives subsequently confirmed amendments to the Bill and it became law on receiving Royal Assent a few days later. One of the measures in the Bill is to bring financial reporting by registrable superannuation entities (RSEs) into the Corporations Act 2001, with effect for financial years beginning on or after 1 July 2023.

Under the new requirements, RSEs need to:

• Prepare and lodge with ASIC an audited financial report and a directors’ report (including a remuneration report) within three months of the end of each financial year
• Make the financial report, directors’ report and auditor’s report available on the entity’s website and provide those reports to members on request
• Include details of how to access the reports together with the notice of annual members’ meeting.

Prior to these amendments, there were no specific requirements for RSEs to lodge financial reports with ASIC or make them publicly available to members, although many RSEs did prepare financial reports and made them available on their website.

The introduction of these new financial reporting requirements represents a new opportunity to revisit RSE’s overall reporting to make it more meaningful for members and provide a further source of communication with existing and potential members.

Access our 30 June 2024 superannuation entity model financial report to learn more and understand the requirements in detail.

Understand the disclosure requirements for June 2023 financial reports as the AASB amendments have been made

The AASB released AASB 2023-2 Amendments to Australian Accounting Standards – International Tax Reform – Pillar Two Model Rules to introduce an exception to the recognition and disclosure of deferred taxes arising from the OECD Pillar Two reforms.

As noted in our previous newsletters, the amendments are partially immediately effective and additional disclosure about the application of the exception is required in 30 June 2023 and later financial reports.

Read our Clarity publication Responding to Pillar Two to help you understand and apply the amendments.  The publication explains the amendments, outlines how they relate to the Pillar Two transition process, and provides illustrative disclosures for financial reports around the impacts of Pillar Two.

Watch a recording of our updates held across Australia during May and June 2023 to refresh your knowledge of key matters to focus on in current financial reports

We’ve released recordings of our May 2023 Client financial reporting updates on our website.

Separate recordings of sessions tailored to for-profit and not-for-profit entities are available, and the presentation slides are also available to download.

The timely release of these resources will assist in understanding important developments in corporate reporting, including sustainability reporting, new standards and amendments, key regulatory priorities and more.