AASB publishes Position Paper on extended external reporting

Although sustainability reporting (extended external reporting) is not yet mandatory in Australia, the global movement towards universal mandatory sustainability reporting is progressing at a rapid pace, as discussed in our recent Corporate Reporting Insights article, Sustainability reporting update for Q1 2022.

The Australian Accounting Standards Board (AASB) has recently published its Position Statement, which supports the voluntary adoption of recommendations made by the Task Force on Climate-related Financial Disclosures (TCFD). By publishing this Position Statement, the AASB were aiming to get ahead of the curve by providing recommendations for entities wishing to adopt some form of sustainability reporting. The AASB is seeking to promote consistency and comparability amongst entities providing extended external reporting (EER).

The Position Statement emphasises that EER is voluntary and notes that nothing in the Position Statement is to be taken as mandating, encouraging or recommending that any EER be undertaken by entities now.

AASB’s position may change in future

For entities choosing to follow the Position Statement and voluntarily adopt the TCFD recommendations for their EER, it is important to note that this is not necessarily the AASB’s final position.

The AASB may change its mind and take a different direction on EER once the International Sustainability Standards Board (ISSB) standards have been finalised. If entities preparing EER voluntarily adopt the AASB’s position in the interim, they should note that final ISSB standards may deviate from the TCFD recommendations. If this is the case, it may involve additional costs to change to new reporting frameworks in the future.

Why does TCFD represent a suitable EER framework?

The AASB’s Position Statement provides the following reasons for recommending the TCFD recommendations as a suitable interim framework in Australia:

  • It is the most commonly adopted framework in Australia amongst entities that have adopted some form of EER
  • It is supported by many significant financial reporting bodies in Australia, including the Australian Securities Exchange (ASX), the Australian Prudential Regulation Authority (APRA), CPA Australia and Chartered Accountants Australia and New Zealand (CAANZ)
  • It is the basis for mandatory EER reporting standards being developed in New Zealand
  • It is the expected basis upon which the ISSB will develop ISSBs.

BDO comments

In our view, recommending voluntary EER reporting by adopting the TCFD recommendations is a premature step. Aletta Boshoff, Partner, National Leader, IFRS & Corporate Reporting and National Leader, ESG & Sustainability, notes:

“Internationally, the IFRS Foundation Trustees have created a new standard-setting board (the ISSB), in addition to the existing IASB, to develop sustainability standards focussed on climate and other ESG matters. We question why the Financial Reporting Council has not created a new standard-setting board in Australia to develop sustainability/ESG reporting standards. We are concerned that the AASB’s involvement in the development of sustainability standards in Australia would negatively impact their mandate to develop accounting standards for NFP entities and the public sector in Australia due to time and resource constraints. We also question whether the members and staff of the AASB have the necessary expertise and experience to develop sustainability standards. Finally, we also note that the TCFDs are incorporated into the ISSB’s exposure drafts and therefore the AASB should recommend the voluntary adoption of the ISSB standards, especially since the ISSB will be developing sustainability standards to address various sustainability risks, and will not be focussed only on climate related risks and disclosures.”

Need assistance?

Please contact Aletta Boshoff or Ashley Bleeker, Director, Corporate Reporting, if you require assistance with your sustainability reporting options.