How climate-related matters affect financial statements

Recent weather events – including the Auckland floods and Cyclone Gabrielle in 2023 – have highlighted the need for organisations to prepare for and mitigate the effects of climate change, including reducing their greenhouse gas emissions. Sagar Adhau discusses the implications of climate change in financial reporting.

Illustration of a house, rising sea waters, a globe and a thermometer To respond to climate change, public organisations might need to change their operating models, business structures, investment strategies, and long-term plans. This could have significant implications for their financial statements and non-financial reports.

It is critical that public organisations appropriately consider these implications, and provide appropriate and adequate disclosures to explain how they have been considered, when preparing their financial statements. To maintain the trust and confidence of New Zealanders, public organisations need to provide clear, transparent, and accurate information about what these implications mean.

We have prepared guidance for public organisations and their auditors

The current financial reporting standards don’t explicitly require public organisations to consider the implications of climate change in their financial reporting. However, various financial reporting matters are directly or indirectly affected by the climate risks and opportunities (for example, impairment, provisions, useful life assessment, and the going concern assumption).

We have prepared high-level guidance on common financial statement items and aspects that could be affected by climate-related matters.

The guidance provides public organisations and their auditors with information about how matters related to climate change could affect an organisation’s financial statements and the main matters that should be considered when preparing the financial statements.

Our guidance makes several recommendations for the public organisations and their staff who are involved in preparing financial statements:

Preparers should consider the broader implications of climate risks and opportunities when preparing their financial statements.
Preparers should provide sufficient and appropriate disclosures to highlight how the financial statements have considered the implications of climate risks and opportunities.
Climate and sustainability teams should work with the finance team to ensure that the information needed to assess financial implications of climate-related matters is adequately considered for financial reporting purposes.
Preparers should provide adequate disclosures about the critical judgments and estimates affected by climate related matters.
Preparers should ensure that the information in the financial statements, and the assumptions and estimates used when preparing them, are consistent with climate-related information in the annual report or elsewhere.
Preparers should stay updated on reporting requirements related to climate change, as well as risks, opportunities, and regulatory matters.

If you're interested, you can find all of our climate-related work in the Publications section on climate change.