Handbook | February 2024

Insight

Handbook: Climate risk in the financial statements

Our in-depth guide comprises a collection of questions, issues and examples that we believe are relevant for companies thinking about the ways in which climate risk can affect their financial statements.

Julie Santoro

Julie Santoro

Partner, Dept. of Professional Practice, ESG, KPMG US

+1 212-954-1086

Maura Hodge

Maura Hodge

ESG Audit Leader, KPMG US

+1 803-606-8370

This February 2024 edition includes updated guidance on lease accounting for renewable energy contracts and an expanded discussion about tax credits under the IRA and CHIPS Acts of 2022.

Applicability

  • All entities

Relevant dates

  • Effective immediately

Continued focus on climate risk

Voluntary sustainability reporting is giving way to mandatory reporting. The International Sustainability Standards Board and the European Union have issued standards that set the foundation for global sustainability reporting, and the SEC is expected to finalize its climate rule in the near term.

Whichever framework is applied, climate reporting is at the forefront; with metrics and narrative that provide greater visibility into a company’s actions, plans and prospects. The picture those disclosures paint – and how it connects to a company’s financial position and performance – is coming under increasing scrutiny.

At the same time, as emissions reduction target dates get closer and as intentions change to strategies and then to actions, the potential effects on the financial statements are becoming more apparent. The volume and ingenuity of transactions linked to emissions reductions continue to increase – with the FASB expected to issue a proposal on accounting for environmental credit programs in the coming months.

These and other emissions-related transactions are testing the application of US 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 financial reporting implications of the organization’s sustainability initiatives.

With the growing awareness of the implications of climate risk for the preparation of financial statements, 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.

Report contents

  • About climate risk
  • Long-lived assets
  • Leases
  • Research and development
  • Impairment of nonfinancial assets
  • Financial instruments
  • Power purchase agreements
  • Contingencies and insurance
  • Revenue and inventories
  • Compensation and benefits
  • Income taxes and related incentives
  • Carbon credits
  • Acquisitions and restructuring
  • Fair value measurement and projections
  • Presentation and disclosure

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