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We are living in uncertain times and regulators recognise the challenges that companies are facing. Climate related matters, the continuing war in the Ukraine and the challenges of the current macro-economic environment continue to feature as top regulatory priorities. David Drought and Aoife Madden of KPMG’s Accounting Advisory team explore the regulatory updates in detail below.

Common areas of Regulatory Focus

Climate related matters


Climate-related matters continue to top the regulators list of priorities. Although sustainability reporting standards are still under development, ESMA expects preparers to report material information on climate-related matters in their 2022 annual reports.

  • Front part of annual report: ESMA recommends that companies provide transparent information on how they will accomplish a transition plan, what resources they have allocated to do this and what their carbon neutrality commitments are. It also recommends that companies distinguish clearly between greenhouse gas (GHG) emission reductions by their own making and those that are offset by purchasing carbon credits.
  • Financial statements: ESMA reminds companies that they need to disclose whether and how climate-related matters have affected the significant estimates and judgements used in testing non-financial assets for impairment. It also reminds companies that some climate commitments may give rise to a liability. When providing disclosures on climate-related matters, ESMA continues to encourage companies to do so in a single note in the financial statements, or at least provide a mapping to help users.

ESMA has also emphasised the need for consistency between information disclosed in the front part of the annual report and the judgements and estimates made in the financial statements.


IAASA has engaged with issuers to assess whether or not they, as a result of their public announcements on climate targets, have created constructive obligations warranting recognition as a provision or a disclosure of a contingent liability or a contractual commitment for future capital expenditure. IAASA has also challenged issuers’ climate targets and has required some issuers to provide further explanations on their decarbonisation and nature-based projects which issuers undertake or commit to undertake to achieve climate targets. Key matters for the Audit Committee to consider are:

  • whether or not entities’ climate commitments require recognition as a provision or disclosure as a contingent liability;
  • the broader impact of the IFRS IC agenda decision titled Negative Low Emission Vehicle Credits, and
  • ensuring that there is a balance and consistency between the disclosures in the management commentary and the disclosures in the financial statements to minimise greenwashing risks.


In 2022, the Financial Reporting Council (“FRC”) in collaboration with the Financial Conduct Authority (“FCA”) undertook a thematic review of companies’ climate-related reporting, focusing on larger premium listed companies which are subject to Taskforce for Climate-related Financial Disclosures (“TCFD”) recommendations. They found that the companies reviewed had generally risen to the challenge of mandatory TCFD reporting and were mostly able to provide the disclosures ‘particularly expected’, as identified by the Listing Rule. They also noted that companies could significantly improve their climate-related reporting in the following four areas:

  • Granularity and specificity of climate-related disclosures
  • Balanced discussion of climate-related risks and opportunities and to consider linking the description of climate-related opportunities to any technological dependencies.
  • Clear links between TCFD disclosures and other narrative disclosures in the annual report and the financial statements.  
  • Materiality considerations in the context of their TCFD disclosures when preparing the TCFD ‘statement of compliance’ required by the Listing Rule. 

The continuing war in the Ukraine

Although the conflict is first and foremost an immense human tragedy for those involved, companies whose operations have been affected will need to continue to consider the financial reporting implications in their year-end annual reports.


In presenting the impact of the war in Ukraine there is a need to distinguish the impact of that war from other geo-political factors. There are two distinct events which need to be considered separately here: the direct impacts of the war itself and the broader indirect impacts on geo-political events. Consequently, aggregating both the direct and indirect impacts into a single discussion point may not be an appropriate presentation or disclosure; they are considered distinct and may be presented and explained separately. Key matters for the Audit Committee to consider are:

  • the impact of broader geo-political events and expectations on amounts included in the financial statements including the going concern assessment, fair value measurement and pension assets and liabilities.
  • the presentation of the impact of geo-political developments and the Ukrainian war should be carefully considered; particularly, the use of APMs should fully comply with the ESMA APM Guidelines.


Further to its May 2022 statement on expectations relating to the Russia-Ukraine conflict, ESMA:

  • calls for companies to provide relevant disclosures on the impacts of the conflict on their financial performance, both in their financial statements and when presenting alternative performance measures (APMs). ESMA warns companies that separate presentation of these impacts may be misleading; and
  • expects companies to be mindful of specific facts and circumstances when making judgements related to the ability to exercise control, joint control or significant influence, and when assessing classification as either held-for-sale or a discontinued operation.


The FRC’s  guidance for Financial Reporting in Uncertain Times, as set out the Annual Review of Corporate Reporting 2021/22 document, equally applies to the continuing war in Ukraine and is consistent with the guidance issued by both  IAASA and ESMA:

  • Companies should clearly explain the risks and changes in the business environment they are facing and how the risks and uncertainties have been reflected in the strategy, business model and going concern and viability assessments.
  • Explanation of the business performance and financial position at the end of the financial year should be made in the context of the business strategy and reflect the risks.
  • Any changes to definitions and/or calculations of APMs (for example, inflation adjusted measures) should be adequately explained.

Challenges posed by the current macroeconomic environment


The FRC’s key disclosure expectations for 2022/23 include:

  • description in the strategic report of risks facing the business, their impact on strategy, business model, going concern and viability, and cross-referenced to relevant detail in the reports and accounts.
  • impairment disclosures that explain how the key assumptions (qualitative and quantitative) used have been determined
  • disclosure of management judgements and key assumptions underlying major sources of estimation uncertainty, including information about the sensitivity of reported amounts to changes in assumptions.
  • disclosure of the nature and extent of material risks arising from financial instruments.
  • company-specific information that meets the disclosure objectives of the relevant accounting standards and not just the specific disclosure requirements.
  • explanation of the nature of significant inflationary features in revenue, supply, leasing and other financing contracts, and their effect on the financial statements.


IAASA have specified that developments such as interest rate increases, inflation, a slowdown in economic growth forecasts and recessionary risks in some economies may impact on areas such as:

  • going concern assessments and the reliability of budgets;
  • fair value measurements generally; and
  • the measurement of pension assets and liabilities.


ESMA have issued similar guidance and urge companies to:

  • consider the impacts of the current economic environment (including the effects of increasing interest rates, inflation, and the COVID-19 pandemic) and related uncertainties; and
  • provide relevant disclosures.

The guidance highlights going concern, impairment of non-financial assets, post-employment benefits, revenue from contracts with customers, onerous contracts and financial instruments as particular areas for companies to focus on.

Other areas of Regulatory Focus


IAASA have issued their 2022-year end observations on selected financial reporting issues document and for the second year in row, the key theme is Global Uncertainty. Key areas of observation include impairment testing, APMs, operating segments, digital security disclosures and cyber-related security risks, ESEF, bank covenant pledged or held and supply chain financing.

New to this year’s observation document is the inclusion of some general financial reporting pointers. This provides management, the directors, and the audit committee with some key “should and should nots” to follow when preparing periodic financial statements.

They should:

  • Provide entity specific disclosures on the significant judgements and the sources of estimation uncertainty and changes in the key assumptions underpinning the measurement of assets, liabilities, income, expenses and cash flows
  • Disclose the impact that COVID-19 restrictions have had on the entity’s financial performance, financial position, cash flows and risks, and the mitigating actions taken in response to the pandemic
  • Consider the impact of climate change on the issuer’s operations and on the measurement of assets and liabilities, and
  • Apply the specific recognition, measurement, presentation, and disclosure requirements of financial reporting standards to provide users with financial information that is comparable, relevant, verifiable, timely and understandable

They should not:

  • Misuse alternative performance measurements (“APMs”)
  • Misuse exceptional item presentation, and
  • “Greenwash” when it comes to disclosing the impact of climate change


There were a range of thematic examinations published by the FRC during  2022 which are summarised as part of the FRC’s Annual Review of Corporate Reporting 2021/22 document and incl. Areas covered in this publication include cash flow statements, financial instruments, income taxes, strategic report and other Companies Act 2006 matters, business combinations, discount rates, judgements & estimates, deferred tax assets and earnings per share.


ESMA outlined their enforcement priorities for 2022 annual financial reports in their October 2022 Public Statement (PDF, 609KB). ESMA enforcement priorities (not previously discussed in this article) include taxonomy related disclosures, reporting scope and data quality, identification of APM’s and reconciliation and block tagging on ESEF.

Get in touch

If you need assistance in determining whether you have adequately considered the above, please reach out to David Drought or Aoife Madden of our Accounting Advisory team. We'd be delighted to hear from you.