Introduction

Following the passage of the legislation by the Australian Parliament, the AASB approved two inaugural sustainability reporting standards modelled after international guidelines and incorporate local legislation.

Climate first approach

Unlike the International Sustainability Standards Board standards, Australian sustainability standards have adopted a climate-first approach by making AASB S2 Climate-related Disclosures mandatory. Companies with reporting obligations must disclose key climate-related areas, including:

• governance and strategies
• risks and opportunities
• metrics and targets concerning emissions, covering direct emissions (Scope 1), energy consumption (Scope 2), and value chain emissions (Scope 3).

Additionally, AASB S2 incorporates changes mandated by legislation, including enhanced scenario analysis. Entities must disclose scenario analysis using at least both of the following scenarios:

• low warming scenario: global average temperature increase is limited to no more than 1.5 degrees
• high warming scenario: global average temperature increase exceeds 2.5 degrees.

Voluntary sustainability disclosure for other topics

AASB S1 General Requirements for Disclosure of Sustainability-related Financial Information covers various sustainability topics including biodiversity and human capital and remains a voluntary standard. This approach contrasts from the ISSB standards which phase  in additional issues from the second year after climate disclosures.

To assist companies in adopting the ISSB-based sustainability standards voluntarily, the IFRS Foundation has published guidance for preparers.

Audit requirements

With the publication of the accounting standards, we are one step closer to implementation. The first group of companies must start reporting for the financial year ending 31 December 2025. However, one key missing piece is the auditing standards, as the company’s financial auditor will audit the sustainability report. The Auditing Assurance Standards Board (AUASB) is currently consulting with stakeholders to determine the assurance rollout for climate-related disclosures. By 2030, all sustainability reports will be subject to audit.

Based on the most recent exposure draft, the proposed audit requirements will be phased in. In the first year of reporting, different content will be subject to varying assurance requirements:

• limited assurance over Scope 1 and 2 emissions for the first year, moving to reasonable assurance thereafter
• other areas of disclosure will gradually be subject to review or audit from the second year onwards.

How SW can help

To make sure you are prepared, SW can conduct a gap analysis and create a road map to guide you on your sustainability journey.

Our audit and advisory experts are well-versed in sustainability accounting standards and will guide your business through any Australian reporting developments.  

Keep an eye out for our alerts on the finalisation of the sustainability reporting assurance standard. 

Contributors

Jimmy Cao

The post From legislation to action: Australia’s sustainability reporting standards finalised appeared first on SW Accountants & Advisors.

The ISSB has issued two standards focusing on material risks and opportunities related to sustainability (IFRS S1) and climate (IFRS S2). The new standards are effective for reporting periods beginning on or after 1 January 2024 however, each jurisdiction may choose its own effective date and which entities would be mandated to comply.

In Australia, Treasury received a range of responses to its first consultation paper regarding rollout for mandatory climate disclosure, and the majority of stakeholders agreed that a phased approach should be implemented.

Treasury has now released a second consultation paper, open until 21 July 2023, seeking consultation on several issues such as the timing of the rollout and covered entities, seeking input whether the standards should initially apply to listed entities and what an appropriate entity size would be. Other matters under consultation include what the legislative framework in Australia would be and who entities would be reporting to.

Proposed rollout

Treasury’s proposed roadmap for mandatory adoption can be summarised as follows:

Group 1 | 2024-25

Entities preparing accounts in accordance with the Corporations Act (chapter 2M) and meets at least 2 of the following:

• over 500 employees
• consolidated gross assets of $1 billion or more
• consolidated revenue of $500 million or more.

AND Entities preparing accounts in accordance with the Corporations Act (chapter 2M) that are a ‘controlling corporation’ under the NGER Act and meet the NGER publication threshold.

Group 2 | 2026-27

Entities preparing accounts in accordance with the Corporations Act (chapter 2M) and meets at least 2 of the following:

• over 250 employees
• consolidated gross assets at end of company’s financial year and any controlled entities is $500 million or more
• consolidated revenue for company’s financial year and any controlled entities is $200 million or more.

AND Entities preparing accounts in accordance with the Corporations Act (chapter 2M) that are a ‘controlling corporation’ under the NGER Act and meet the NGER publication threshold.

Group 3 | 2027-28

Entities preparing accounts in accordance with the Corporations Act (chapter 2M) and meets at least 2 of the following:

• over 100 employees
• consolidated gross assets at the end of the company’s financial year and  controlled entities is $25 million or more
• consolidated revenue for the company’s financial and any controlled entities it $50 million or more.

AND Entities preparing accounts in accordance with the Corporations Act (chapter 2M) that are a ‘controlling corporation’ under the NGER Act.

Voluntary reporting disclosure

Whilst currently not mandatory, many organisations will choose to early adopt, particularly if they know their investors or other stakeholders will find the information relevant. This includes entities in industries that are expected to be significantly impacted by climate change and/or sustainability related matters.

SW highly recommends that entities consider the adequacy of systems and processes to capture sustainability and climate related information.

How SW can help

Our team of audit and assurance experts are fully informed of the requirements of the sustainability accounting standards and can assist with providing guidance for your business, as well as keeping you abreast of developments from an Australian reporting context.

Reach out to our key contacts here for a conversation.

Contributors

James Serpell

The post Sustainability Accounting Standards issued appeared first on SW Accountants & Advisors.