The Impact of IFRS S1 and S2 on Accounting Education

How will the new IFRS S1 and S2 standards revolutionise the accounting world and redefine the way we teach and learn this discipline? These new standards represent a significant evolution in business reporting, emphasising the importance of sustainability and climate-related disclosures. This shift is not just a change in reporting practices but a transformative moment for the accounting profession, especially in education.

Traditionally, accounting education has focused on financial reporting, auditing, taxation, and managerial accounting. However, with the arrival of IFRS S1 and S2, there's a delightful yet challenging opportunity to enrich the curriculum. It's an invitation for educators and students alike to engage with these new standards, embracing a broader perspective that includes sustainability alongside financial data.

A transformative moment

“The shift [to the new IFRS S1 and S2 standards] is not just a change in reporting practices but a transformative moment for the accounting profession, especially in education”

Why this change, you might ask? Well, in recent years, there's been a growing interest in how businesses impact the environment and society. This interest has led many organizations to voluntarily include environmental and social information in their financial reports. Recognising this trend, the IFRS Foundation established the International Sustainability Standards Board (ISSB) in November 2021. By June 2023, the ISSB had proudly issued its first two sustainability standards. Their goal? To set a global benchmark for sustainability reporting that's uniform, comparable, and most importantly, meets investor needs.

Australian equivalent and who needs to report?

ASRS 1 General Requirements for Disclosure of Climate-related Financial Information, and ASRS 2 Climate-related Financial Disclosures, were developed using IFRS S1 IFRS S2 as the foundational baseline. To accommodate different entities' preparedness and operational capacities, the adoption of these standards is structured around a phased timeline. These standards would be required to be applied as follows:

• for entities in Group 1 – in annual periods beginning on or after 1 July 2024;

• for entities in Group 2 – in annual periods beginning on or after 1 July 2026;

• and for entities in Group 3 – in annual periods beginning on or after 1 July 2027.

An important aspect of these standards is the alignment of an entity's sustainability-related financial disclosures with its general-purpose financial reports (GPFR). For those looking for more detailed guidance on implementing these standards and the specific requirements for each group, ED SR1 offers comprehensive insights.

Key aspects of IFRS S1

IFRS S1 is designed to enhance the usefulness of general-purpose financial reports by highlighting the sustainability-related risks and opportunities that could influence an entity's financial position in the short, medium, or long term. Entities are required to report on any sustainability-related risks and opportunities that might reasonably impact their cash flows, access to finance, or cost of capital. Compliance with IFRS S1 involves detailed disclosures across several key areas, including governance framework, strategic management, risk and opportunity assessment, and performance and progress reporting.

Key aspects of IFRS S2

IFRS S2, zeroes in on climate-related disclosures, aiming to augment the existing financial reporting framework by detailing how companies should report their climate-related risks and opportunities. It covers a similar array of critical areas to IFRS S1 but is specifically tailored to address the climate-related aspects of governance, strategy, risk and opportunity assessment, and performance reporting.

A New Chapter in Accounting Education

The introduction of IFRS S1 and S2 standards is not just a step forward in business reporting; it's a leap towards integrating sustainability into the core of accounting education. This integration challenges educators and students to broaden their understanding of accounting beyond numbers, to include the pivotal role businesses play in sustainability. As we navigate this new chapter, the accounting profession stands on the cusp of a transformative journey, one that promises to redefine our approach to teaching and learning in a world increasingly focused on sustainability.