As more entities commit to climate-related expenditure, the accounting implications will soon reach a critical tipping point, demanding urgent attention and action. The joint submission from CA ANZ and CPA Australia emphasises the need for additional research into the accounting implications for research and development (R&D) expenditure related to climate commitments.

The fact pattern in the Tentative Agenda Decision relate to an entity’s commitment to reduce carbon emissions by 2030 and subsequent affirmative action creating a constructive or legal obligation applying IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The request sought clarity on whether these expenditures meet the requirements in IAS 38 to be recognised as intangible assets. The Committee found no material diversity in accounting practices for R&D expenditures and decided not to add a standard-setting project to the work plan.

Such expenses and commitments are becoming increasingly common and there is significant demand being placed on entities to address the impact of climate change. Our submission recommends that the IASB consider the accounting implications for R&D expenditure related to climate commitments as part of its Intangible Assets project to comprehensively review IAS 38.

As this is likely to be a long-term project, in the interim, to assist preparers who are beginning to consider the impacts of their climate-related commitments on their financial statements, we have proposed that the IASB develops some specific illustrative examples on how current IFRS Accounting Standards can be applied to these emerging matters. We believe that educational materials are the most appropriate vehicle to publish this guidance, owing to the flexibility of the format and content, and the efficiency with which they are published. Specifically, we recommend they be presented in the same educational materials as the illustrative examples that result from the IASB’s Climate-Related and Other Uncertainties in the Financial Statements project, creating a single point of reference for these matters.

As climate reporting becomes more established, more questions will arise as business strategies and investments to reduce greenhouse gas (GHG) emissions to achieve net-zero commitments become common practice. CA ANZ and CPA Australia continue to advocate for alignment between financial statements, sustainability reports, and other reports to ensure reporting obligations are effectively fulfilled. We urge the IASB and the ISSB to undertake a more detailed assessment of their respective standards in due course to address this need.