Disclosure about climate-related impacts and other uncertainties in financial statements

Efforts to reduce society’s impact on climate change have never been greater. There is unprecedented pressure from stakeholders for entities to communicate clear commitments which is expected to continue for the foreseeable future. Investors have highlighted the importance of understanding entities’ impact on the environment in their investmentmaking decisions and assessing management’s stewardship.

Although there is no single explicit standard on climate-related matters in Ind AS, climate risk and other climate-related matters may impact several areas of accounting. Even if climate related matters and other uncertainties do not have an immediate impact on the financial statements, there are increasing expectations from stakeholders that entities explain how climate-related matters and other uncertainties are considered in preparing financial statements. Stakeholders also expect robust disclosures on the most significant assumptions, estimates and judgements made.

Increasingly, investors and regulators expect financial statements, managements reports and sustainabilityrelated disclosures to tell a coherent and connected story. Entities, therefore, need to provide relevant and transparent information and disclosures that coherently enable primary users of financial statements to understand them. While Ind AS do not contain any explicit disclosure requirements for climate-related matters, a number of disc

1. Ind AS 1 Presentation of Financial Statements states that the objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. Information pertaining to climate-related matters will be relevant if investors reasonably expect that it may have a significant impact on the entity and, therefore, influence their economic decisions.
2. Ind AS 1 requires entities to disclose information that is not specifically required by Ind AS but is relevant to understanding the financial statements. This may include climate-related disclosures.
3. Paragraph 125 of Ind AS 1 requires entities to disclose assumptions about the future and other major sources of estimation uncertainty at the reporting date that could result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
4. Ind AS 1 requires disclosure of judgements made by management, separately from estimates, that may have the most significant effect on the amounts recognized in the financial statements. Climate-related matters may impact judgements made when deciding appropriate accounting policies and thus may, in some cases, trigger such disclosures.
5. Disclosures required by other Ind AS may also include climate-related disclosures. For example, Ind AS 36 Impairment of Assets requires an entity to disclose sufficient information for users to understand how an asset or CGU was tested for impairment, such as key estimates and judgements, and the events and circumstances that led to the recognition of any impairment loss.

hat is changing?

On 28 November 2025, the International Accounting Standards Board (the IASB) issued Amendments to Illustrative Examples on IFRS 7, IFRS 18/ IAS 1, IAS 8, IAS 36 and IAS 37– Disclosures about Uncertainties in the Financial Statements (‘the examples’). These amendments added examples to several IFRS Accounting Standards. The examples are intended to improve reporting of climate-related and other uncertainties in the financial statements. The examples illustrate how entities apply existing requirements in IFRS Accounting Standards to report the effects of uncertainties in the financial statements using climaterelated examples. They do not add to or change the existing requirements in IFRS Accounting Standards.

Given below is a summary of key principles emerging from these examples. Since the examples apply equally to all uncertainties and not just those illustrated, entities should carefully consider the underlying logic in the examples to be able to apply the guidance to their own facts and circumstances.

Example 1: Materiality judgements

Scenario 1:Materiality judgements leading to additional disclosures

An entity operates in a capital-intensive manufacturing industry and faces significant climate-related transition risks. To mitigate these risks, the entity has developed a plan to reduce greenhouse gas emissions over the next 10 years. The entity has shared details of this plan in its sustainability report. In preparing financial statements, the entity evaluates and appropriately concludes that the transition plan has no effect on recognition or measurement of assets or liabilities. It also determines that IFRS Accounting Standards do not require specific disclosures for the transition plan.

Despite the evaluation, the entity, after considering its particular facts and overarching disclosure principles, determines that additional disclosure to explain the lack of effect of its transition plan on its financial position and financial performance for the current reporting period will provide material information to the users of the financial statements. The entity, therefore, makes relevant disclosures in its financial statements

Entity-specific and external qualitative factors such as the nature and extent of the entity’s exposure to climaterelated risk, the significance of the transition plan to its operations, and the industry and jurisdictions in which the entity operates, are some relevant factors in deciding disclosure requirement.

Scenario 2:Materiality judgements not leading to additional disclosures

The entity is a service provider with limited exposure to climate-related transition risks. In its sustainability report, the entity has mentioned that it has low greenhouse gas emissions, relies on renewable energy and avoids highemission activities. No further information about climaterelated transition risks is disclosed. In preparing its financial statements, the entity concludes that its greenhouse gas policy has no effect on recognition or measurement of assets or liabilities. The entity also concludes that information about the absence of a quantitative effect is not material. Accordingly, no additional disclosures are provided.

Example 2: Assumptions: Specific requirements about impairment testing

Example 2 illustrates the requirements in paragraph 134 of IAS 36 Impairment of Assets, which include disclosure requirements for estimates used in impairment testing of goodwill or intangible assets with indefinite useful lives. Example 2 illustrates how an entity discloses key assumptions and sensitivity analysis in relation to an impairment test of goodwill, even though the recoverable amount of goodwill exceeds its carrying amount. Both this example and Example 3 highlight that all key assumptions, not only discount rates or growth rates, should be disclosed if they provide material information

Example 3: Assumptions: General requirements

Example 3 illustrates requirements in paragraphs 125 and 129 of IAS 1 (after IFRS 18 is effective, of paragraphs 31A and 31E of IAS 8 Basis of Preparation of Financial Statements), which include disclosure requirements for sources of estimation uncertainty. Example 3 illustrates that an entity might be required to disclose information about assumptions that have a significant risk of resulting in material adjustments to the carrying amount of assets and liabilities within the next year, even if such assumptions will not be resolved within the next year. The example also provides examples of information the entity might disclose.

In determining whether the information about its assumptions is material, the entity considers the size of the cashgenerating unit's (CGU) carrying amount; subjectivity or complexity of the judgements made by management in determining the assumptions; the risk that new information or new developments in the next financial year might result in changes to assumptions; and sensitivity of the CGU's carrying amount to changes in the assumptions.

Example 4: Credit risk disclosures

Example 4 illustrates the requirements in paragraphs 35A-36 of IFRS 7 Financial Instruments: Disclosures, which include disclosure requirements for credit risk. In the fact pattern provided in this example, the entity identifies two portfolios of loans for which climate-related risks have a significant effect on its credit risk exposures.

The example provides several factors (e.g., the size of the portfolios, the significance of the effects of climate-related risks) that an entity considers when it determines that information about the effects of climate-related risks on its exposure to credit risk for those two portfolios is material as well examples of information disclosed in applying the requirements in paragraphs 35A-38 of IFRS 7.

Example 5: Decommissioning and site restoration provisions

Example 5 illustrates the requirements in paragraph 85 of IAS 37 Provisions, Contingent Liabilities and Contingent Assets, which include disclosure requirements for each class of provision recognized. In Example 5, the entity provides information required in accordance with paragraph 85 of IAS 37, e.g., a brief description of the nature of the obligations, the expected timing of the outflows of economic benefits required to settle them, and an indication of the uncertainties about the amount or timing of those outflows. This is because the information about its obligations to decommission plant and site restoration is material, although the provision recognized is quantitatively immaterial as the cost to settle the obligation is discounted to its present value. The example illustrates several factors that might be relevant in determining whether the obligation is material (e.g., the risk of early settlement, the size of the cost to settle the obligation on an undiscounted basis)

Example 6: Disclosure of disaggregated information

Example 6 illustrates the requirements in paragraphs 41-42 and B110 of IFRS 18, which include disclosure requirements for aggregation and disaggregation. In Example 6, the entity owns and uses two types of property, plant and equipment (PP&E) that are in the same class but differ in terms of the amount of greenhouse gas emissions they generate from their use. The entity disaggregates information, for example, the carrying amount of the two types of PP&E in the notes to its financial statements

The example illustrates possible factors an entity might consider when determining whether ‘the two types of PP&E have sufficiently dissimilar risk characteristics that disaggregating information about these types of PP&E would result in material information’, such as the size of the PP&E carrying amount, the significance of climate-related transition risks to the entity's operations, and external climate-related qualitative factors (e.g., the industry and jurisdictions in which the entity operates, including its market, economic, regulatory and legal environments). Although the example illustrates the application of requirements in IFRS 18, which differ from those in IAS 1, entities need to consider whether disaggregated information is material in applying the relevant requirements in IAS 1 (including paragraphs 29-31 and 77).

Concluding remarks

Historically, examples contained in IFRS Accounting Standards are not incorporated in Ind AS. However, they remain relevant and are expected to be considered in practice. Further, in all cases, Ind AS contains the disclosure requirements that are aligned with those in IFRS Accounting Standards. Thus, Indian entities are also expected to apply the same underlying principles when preparing financial statements under Ind AS.

While entities are entitled to sufficient time to implement any changes to their financial statements, these illustrative examples reflect existing requirements in the relevant standards and, therefore, entities will be expected to have considered these examples in preparing their next set of financial statements for the year ended 31 March 2026. The IASB has also clarified that these illustrative examples relate not only to climate-related risks but also to other uncertainties.