IPA calls for ‘simplified’ climate reporting for SMEs
Certain disclosures under the ISSB standards will be complex and difficult for SMEs to undertake and may require simplification, the IPA cautions.
SMEs are unlikely to have the capabilities and resources to comply with particular aspects of the ISSB standards once they become applicable, the Institute of Public Accountants has said in a recent submission.
The International Sustainability Standards Board (ISSB) released the first two IFRS Sustainability Standards last month which will pave the way for mandatory climate reporting in Australia.
Treasury has also released its second round of consultation on mandatory climate-related financial disclosure (CFD) and has signalled that the ISSB standards could become mandatory for Australian companies as part of a three-year phased implementation approach, commencing 2024–25.
The Institute of Public Accountants said the phased implementation of mandatory climate-related financial disclosure in Australia will enable practitioners operating in the small-to-medium enterprise (SME) sector time to acquire the necessary resources, capacity and expertise to implement or provide services relating to CFD.
“The delay will enable our members to acquire the necessary resources, capacity and expertise to implement and/or provide services relating to CFD,” the IPA said in the submission.
“Additionally, the staggered timeframe for application enables the profession to build up its capabilities at a workable pace.”
However, the professional body said that some of the disclosures such as scenario analysis would still be complex and difficult to undertake for SMEs, despite the transitional period proposed by Treasury.
“Accordingly our support for the disclosure proposals is conditional upon ISSB’s potential simplification of the requirements for SMEs and guidance developed by the ISSB or the marketplace to assist SMEs in undertaking the analysis when the sustainability standards become applicable for SMEs,” the IPA said.
The IPA said it would also be important to learn from the experiences of larger entities, particularly in regards to the scenario analysis requirements under the standards.
The accounting body also said it was supportive of the proposals that where an entity does not have a transition plan and/or has not developed or stated future targets, the disclosure is met by stating these facts.
“These proposals are particularly relevant for IPA members who operate in the SME sector that would need to develop the transition plans and climate-related targets from scratch,” it said in the submission.
Upskilling of auditors and other professionals critical
The IPA also stressed the importance of registered company auditors (RCAs) further developing their skills in relation to assurance over climate-related disclosure, given that is it is an emerging area.
The submission noted that many RCAs may not have had prior experience with carbon and sustainability reporting.
“Limited assurance initially over climate-related disclosure and the three-year phased-in approach will assist audit and assurance practitioners to build capability and capacity, however, a level of competency type standards should be considered to assist practitioners build their capability,” it said.
“The lack of an accreditation framework including courses, training and accredited providers will constrain RCAs and other professionals from undertaking appropriate upskilling. Consideration needs to be given to phasing-in the required level of experience given the field is in its infancy and emerging.”
The IPA warned that if RCAs and other professionals do not have sufficient time to upskill, to enable them to provide audit and assurance services for climate-related disclosures, there may be “the unintended consequences of either poor audit quality of climate-related disclosures particularly around auditing scenario analysis; or a limited number of practitioners who have the required skill set”.
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