The FRC staff factsheet, published on Thursday 12 November, will inform preparers of annual reports under FRS 102 of climate-related matters they may need to consider when preparing financial statements and associated narrative reporting.

Demand from stakeholders continues to increase the focus on how Environmental, Social and Governance (ESG) matters can affect a company’s financial position and performance, and the associated risks that it faces. This increased focus has led to legislation and guidance on the content of the narrative sections of the annual report, such as requiring disclosure of greenhouse gas emissions or providing information about emissions reduction strategies. Less attention has been paid to the financial statements themselves.

The FRC has helped drive improved reporting in this area with recent publications including the Climate Thematic and the ESG Statement of Intent. These publications emphasised that preparers need to consider the impact of climate-related matters on the financial statements as well as on the narrative reporting. This staff factsheet is a response to the commitments made in these publications to issue such guidance.

FRS 102 considerations

The factsheet explains that although FRS 102 contains no explicit references to climate-related matters, such matters should be considered for their impact upon the financial statements in the same manner as any other matters which could have a material impact upon the financial statements.

The first part of the factsheet sets out ways in which climate-related matters may impact on a set of financial statements prepared under FRS 102. This includes for example:

• How the general requirements of FRS 102 should be applied in the context of climate-related matters, particularly in relation to risks, uncertainties, judgements and estimates that need to be considered when preparing financial statements.

• How climate-related matters could impact the recognition and measurement of items in the financial statements.

• How climate-related matters could impact disclosures and what additional disclosures might be required.

Narrative reporting

The second part of the factsheet provides a summary of current and proposed legal and regulatory requirements applicable to companies in the UK in relation to climate and associated matters. The FRC has included this section with the intention to help entities improve the linkage between their financial and narrative reporting. 

A link to the FRC staff factsheet on climate-related changes is available here.