This February 2023 edition includes new chapters on R&D, power purchase agreements and carbon credits; plus new guidance on share-based payments linked to emissions reduction targets.
Climate risk continues to dominate current ESG headlines. Forthcoming disclosure requirements from the SEC, the European Union and the International Sustainability Standards Board are likely to set the future foundation of global ESG reporting.
But the question of how climate risk affects the financial statements themselves – absent climate-specific GAAP requirements – has been harder to pin down.
Some commentators believe the financial statements should include explicit disclosures related to climate risk, but the reality of applying existing GAAP is more complex. An intention to be net-zero by 2050 is not the same as an action plan to reduce emissions by 2030 that is already underway. However, as target dates get closer and as intentions change to strategies and then to actions, the potential effects on the financial statements increase.
At the same time, transactions linked to emissions reductions are increasing – including arrangements that include carbon credits and emissions-linked compensation. These transactions are testing the application of GAAP in cases where there might not be explicit guidance, and leaving the finance function to develop processes and controls to help it monitor the implications of the organization’s sustainability initiatives.
We are seeing the growing implications of climate risk for the preparation of financial statements, and we hope this latest edition of our US GAAP handbook will help you prepare. Ask yourself the questions that we pose, create your own checklist, and monitor your environment and circumstances.
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