Handbook: Climate risk in the financial statements
Handbook | December 2024
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.
This December 2024 edition includes updated guidance on fair value measurement.
Applicability
- All entities
Relevant dates
- Effective immediately
Growing acknowledgment of 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 California climate laws require reporting in 2026 for thousands of US companies.
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 into view.
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’s proposal on accounting for environmental credit programs now open for comment.
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 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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Climate risk in the financial statements
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Resource
FASB proposes ASU on environmental credit programs
The proposed ASU introduces an accounting model for environmental credits and environmental credit obligations.
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FASB proposes changes to scope of derivative accounting
The proposed ASU expands a scope exception for derivatives and clarifies the interaction between ASC 815 and ASC 606.
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FASB proposes accounting guidance for government grants
The proposed ASU introduces an accounting model for business entities to account for government grants.
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