Europe

ESMA announces 2024 priorities for corporate reporting and measures to support sustainability reporting

In October 2024, the European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, issued its annual European Common Enforcement Priorities (ECEP) Statement for 2024, addressing the following topics:

• International Financial Reporting Standards (IFRS) financial statements – liquidity considerations and accounting policies; judgements; and significant estimates.
• Sustainability statements – materiality considerations in reporting under the European Sustainability Reporting Standards (ESRS); scope and structure of the sustainability statements; and disclosures related to Article 8 of the Taxonomy Regulation.
• European Single Electronic Format (ESEF) digital reporting – common filing errors found in the Statement of Financial Position. 

The ECEP statement also provides some general remarks on topics in a dedicated section. These topics, which include connectivity between financial and sustainability statements, continue to be of particular importance for issuers.

In July 2024, ESMA had also published a final report on the Guidelines on Enforcement of Sustainability Information to build convergence on supervisory practices on sustainability reporting.

ESMA issued a public statement outlining its expectations for the first group of large public-interest entities aiming to publish their first sustainability statement in accordance with ESRS in 2025. ESMA also made clear its intention to support the entities going through the steep learning curve associated with the implementation of the new reporting requirements.

ESMA considers the following areas of particular importance in the preparation of ESRS sustainability statements:

• establishing governance arrangements and internal controls that can promote high-quality sustainability reporting;
• properly designing and conducting the double materiality assessment and being transparent about it;
• being transparent about transitional reliefs;
• preparing a clearly structured and digitisation ready sustainability statement; and
• creating connectivity between financial and sustainability information. 

Pantelis Pavlou, Director, Corporate Reporting, EY

Hong Kong

Recent developments in sustainability disclosure standards in Hong Kong

After due consideration and deliberation of public comments received on the local consultation on exposure drafts of HKFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and HKFRS S2 Climate-related Disclosures by its Financial Reporting Standards Committee, the Hong Kong Institute of Certified Public Accountants (HKICPA) published its first two sustainability disclosure standards on 12 December 2024. The new standards, HKFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and HKFRS S2 Climate-related Disclosures, both have an effective date for reporting periods beginning on or after 1 August 2025 and are fully converged with the equivalent inaugural International Sustainability Standards Board (ISSB) standards.

The ISSB’s standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures, provide a set of comprehensive standards aimed at achieving a global baseline for sustainability disclosures. Their endorsement by the International Organization of Securities Commission reflects them as being fit for purpose in serving the needs of the capital market.

The decision of full convergence with the ISSB’s standards was reached by the HKICPA after a holistic assessment of relevant factors, including local and international developments. Substantive evidence gathered from extensive engagement with a wide range of stakeholders over the past few years was also considered, starting with the publication of the draft ISSB standards in early 2022 and culminating in the completion of a technical feasibility study on the application of the ISSB standards in Hong Kong in June 2024. As an international financial centre, Hong Kong’s full convergence with the ISSB Standards has global significance, bolstering the connection of global capital with local businesses as well as those in mainland China and other regions.

HKFRS S1 and HKFRS S2 were subsequently developed in line with the Roadmap on Sustainability Disclosure in Hong Kong (HK Roadmap) published by the Financial Services and the Treasury Bureau of the HKSAR Government on 10 December 2024. The HK Roadmap sets out Hong Kong’s approach to adopting the ISSB Standards and provides a well-defined pathway for large PAEs to apply the HKFRS S1 and HKFRS S2 no later than 2028, taking into account the readiness and capacity of Hong Kong stakeholders.

Anthony Wong, Associate Director (Standard Setting), Hong Kong Institute of Certified Public Accountants

Japan

JICPA’s views on IABS’s proposed climate-related and other uncertainties examples

The International Accounting Standards Board (IASB) issued the Exposure Draft Climate-related and Other Uncertainties in the Financial Statements (ED) in July 2024 that proposes eight examples to illustrate how an entity applies the requirements in IFRS Accounting Standards to report the effects of climate-related and other uncertainties in its financial statements. The examples mostly focus on climate-related uncertainties, but the principles and requirements illustrated apply equally to other types of uncertainties and are expected to help improve reporting the effects of these uncertainties in the financial statements.

The Japanese Institute of Certified Public Accountants (JICPA) understands that the topic of climate-related risks is significant for auditors. As such, JICPA supports the IASB’s purpose of the project: to respond to stakeholders who are concerned that information about the effects of climate-related risks in the financial statements is insufficient or appear to be inconsistent with information entities provide outside of their financial statements. 

In addition, JICPA agrees with the IASB’s proposal to include the examples as illustrative examples accompanying IFRS Accounting Standards, which should be easier for users to find and refer to for practical reasons, instead of publishing them as educational materials available on the IASB’s website. JICPA believes using the format of illustrative examples will provide a greater opportunity for entities and auditors to consider the effects of climate change in practice.

However, JICPA strongly believes providing illustrative examples alone, as currently proposed in the ED, would not be sufficient and suspect only limited improvement would be seen in practice under the proposal. In order to improve information disclosed, JICPA suggests the IASB provide prescriptive concepts behind the illustrative examples and explanations as to how to apply general disclosure requirements. 

Alongside this, JICPA recommends the Board consider amending IFRS Accounting Standards to include guidance about materiality judgements on information disclosed in the financial statements regarding sustainability and other disclosures. Any such amendments to IFRS Accounting Standards should be separately considered because of their anticipated widespread impact, which would go far beyond the scope of the current ED. 

For these reasons, JICPA does not agree with the current ED’s proposal to resolve the situation simply by providing illustrative examples.

Takeshi Takada CPA (US), Technical Director, Corporate Accounting, Professional Standards and Practices Division, The Japanese Institute of Certified Public Accountants