Climate Change Risk and Climate-Related Financial Disclosures - Accounting & Finance Assignment Help

Assignment Task

Research topic: Climate change risk and Climate-related financial disclosures

Managing climate change risk is a significant issue for reporting entities, in particular from a corporate disclosure perspective.
In June 2017, the Task Force on Climate-Related Financial Disclosures (TCFD) released a final report titled “Recommendations of the Task Force on Climate-related Financial Disclosures” (TCFD, 2017). This report provided an overview of climate-related risks, opportunities and financial impacts as well as recommendations and guidance, in particular recommended disclosures (TCFD, 2017).
Subsequent to this, in December 2018, the Australian Accounting Standards Board (AASB) and the Auditing and Assurance Standards Board (AUASB) issued a document titled “Climate-related and other emerging risks disclosures: assessing financial statement materiality using AASB Practice Statement 2” (AASB and AUASB, 2018).
This document identified the following key points:
• Climate-related risks and other emerging risks are currently predominantly discussed outside the financial statements, if at all
• qualitative external factors such as the industry in which the entity operates, and investor expectations may make such risks ‘material’ and warrant disclosures when preparing financial statements
• Given investor statements on the importance of climate-related risks to their decision making, the impact of the materiality definition and APS 2 is that entities can no longer treat climaterelated risks as merely a matter of corporate social responsibility and should consider them also in the context of their financial statements
• Entities preparing financial statements in accordance with Australian Accounting Standards consider:

o whether investors could reasonably expect those emerging risks, including climaterelated risks could affect the amounts and disclosures reported in the financial statements and have indicated the importance of such information to their decision making; and
o what disclosures about the impact of climate-related risks are material to the financial statements in light of the guidance in APS

In addition to the reports prepared by the TCFD and the AASB / AUASB, both Deloitte and Ernst and Young (EY) have released documents which provide advice to organisations with regards to how to address the TCFD’s recommendations with regards to disclosing climate change risk (Deloitte, 2018, EY, 2017

Required:
1Q. Identify and explain the principles for effective disclosure developed by the TCFD
Advice / suggestions
You should identify and explain the following principles for effective disclosure:
Principle 1: Disclosures should present relevant information – You should discuss principle 1 in the context of: a. materiality, investor and market interest or attention; b. assessing an organization’s exposure and approach to addressing climate-related issues; and. the potential impact of climaterelated issues on value creation.
Principle 2: Disclosures should be specific and complete – You should discuss principle 2 in the context of an organizations: exposure to potential climate-related impacts; the potential nature and size of such impacts; organization’s governance, strategy and the provision of historical and future oriented information.
Principle 3: Disclosures should be clear, balanced, and understandable – You should discuss principle 3 in the context of: communicating financial information that serves the needs of a range of financial sector users; obtaining a balance between qualitative and quantitative information; providing an insight into the meaning of quantitative disclosures and straightforward explanations of issues.
Principle 4: Disclosures should be consistent over time – You should discuss principle 4 in the context of: providing consistency over time to enable users to understand the development and/or evolution of the impact of climate-related issues; and the expectation of changes in disclosures and related approaches or format.
Principle 5: Disclosures should be comparable among organizations within a sector, industry, or portfolio – you should discuss principle 5 in the context of: allowing for meaningful comparisons of strategy, business activities, risks; enabling comparison and benchmarking of risks across sectors; and consistency across organizations.
Principle 6: Disclosures should be reliable, verifiable, and objective - you should discuss principle 6 in the context of: providing high-quality reliable information, involving the exercise of the organization’s judgment, and ensuring that the information reported is of high quality.
Principle 7: Disclosures should be provided on a timely basis - you should discuss principle 7 in the context of: information being delivered to users or updated in a timely manner and the provision of a timely update of climate related disclosures as appropriate.
Clearly reference the relevant documents which you referred to in answering this question.

2Q. Analyse the extent to which the TCFD principles for effective disclosure are consistent with the IASB / AASB conceptual framework.
Advice / suggestions
You should identify an explain the similarities and differences between the TCFD principles and the IASB conceptual framework in terms of:
• Compare and contrast TCFD principle 1 with the IASB conceptual framework fundamental qualitative characteristic of relevance – what are the similarities, what are the differences
• Compare and contrast TCFD principle 2 with the IASB conceptual framework fundamental qualitative characteristic of faithful representation, specifically completeness – what are the similarities, what are the differences
• Compare and contrast TCFD principle 3 with the IASB conceptual framework enhancing qualitative characteristic of understandable – what are the similarities, what are the differences
• Compare and contrast TCFD principle 4 with any of the IASB conceptual framework’s qualitative characteristics – what are the similarities, what are the differences
• Compare and contrast TCFD principle 5 with the IASB conceptual framework enhancing qualitative characteristic of comparable - what are the similarities, what are the differences
• Compare and contrast TCFD principle 6 with the IASB conceptual framework fundamental qualitative characteristic of faithful representation and the enhancing qualitative characteristic of verifiable - what are the similarities, what are the differences5
• Compare and contrast TCFD principle 7 with the IASB conceptual framework enhancing qualitative characteristic of timely - what are the similarities, what are the differences

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