(This article was published on 26 November 2024 and updated on 26 November 2025)
Clear, transparent and connected disclosures about the impact of climate-related matters on impairment testing are key to meeting the expectations of users of the financial statements. Users need relevant information to make informed decisions. For impairment, users need to understand whether and how climate-related matters are reflected in the calculation of the recoverable amount.
IFRS® Accounting Standards do not refer explicitly to climate-related matters, but they implicitly require relevant disclosures in the financial statements when climate-related matters that have been considered in preparing the financial statements are material. Therefore, companies need to consider materiality carefully when deciding what information to provide.
To meet users’ expectations, companies need to consider the specific disclosure requirements in individual standards (e.g. IAS 36 Impairment of Assets) as well as the overarching disclosure requirements in IAS 1 Presentation of Financial Statements.
Your questions answered
A company may need to disclose the following climate-related information under IAS 36.
The events and circumstances that led to the recognition of the impairment loss | For example, a company would need to disclose that the introduction of climate-related legislation that it expects to significantly increase its manufacturing costs, which is one of the main reasons for recognising an impairment loss. [IAS 36.130(a), 131(b)] |
| Key assumptions | In the context of impairment testing of cash-generating units (CGUs) containing significant goodwill or intangible assets with an indefinite useful life1, a company is required to disclose:
For example, if future prices of GHG emissions are a key assumption, then the company discloses these assumptions, whether the prices reflect past experience, are consistent with external sources of information and, if not, how and why they differ from past experience or external sources of information. [IAS 36.134(d)(i)–(ii), (e)(i)–(ii)] 1 Otherwise, if an impairment loss or reversal is recognised, then a company discloses (i) the discount rate used in VIU and (ii) key assumptions used in FVLCD categorised in Level 2 or 3 of the fair value hierarchy as defined in IFRS 13 Fair Value Measurement. [IAS 36.130(f)(iii), (g)] |
| Sensitivity disclosures | In the context of impairment testing of goodwill and intangible assets with an indefinite useful life, a company is required to provide sensitivity disclosures when a reasonably possible change in a key assumption would cause the carrying amount of the CGU (or group of CGUs) to exceed its recoverable amount. [IAS 36.134(f)] |
A company also assesses whether additional disclosures under IAS 1 are needed for a user to understand the impact of climate-related matters on the company’s financial position or performance – see Question 2.
A company may need to disclose the following climate-related information under IAS 1.
Key accounting judgements | A company is required to disclose key judgements (apart from those involving estimation) it has made in applying accounting policies that can significantly affect the amounts that it recognises in the financial statements. [IAS 1.122–123] Examples of such key judgements are those made in assessing whether significant capital expenditure to be incurred due to climate-related matters is more akin to maintenance expenditure or capital improvements for the value in use (VIU) calculation. |
Key assumptions and major sources of estimation uncertainty | A company is required to disclose the key assumptions used in estimating the recoverable amount that have a significant risk of resulting in a material adjustment to the carrying amount of assets (or CGUs) within the next financial year. When there is a high level of estimation uncertainty, a company may also consider providing information related to reasonably possible changes to those assumptions (e.g. sensitivity disclosures). [IAS 1.125, 129] For example, it may be important to provide these disclosures when the potential impact on the cash flow projections of costs of GHG emissions, or changes resulting from climate-related legislation, is uncertain and could result in a material change to the recoverable amount and carrying amount of the company’s assets (or CGUs) within the next financial year. |
Additional disclosure to enable users to understand the climate-related impacts | A company may need to include additional disclosures to enable users to understand the impact of climate-related matters on its financial position and financial performance. [IAS 1.17(c), 31, 112] For example, a CGU may be exposed to significant climate-related transition risks; however, no impairment is recognised. The lack of effect of climate-related risks on the carrying amount of the CGU may be assessed by the company to be material information. |
Companies need to make materiality judgements when deciding what information to disclose in the financial statements about climate-related matters.
The materiality assessment focuses on the relevance of the information for users of the financial statements in making their investing and financing decisions, and involves both quantitative and qualitative considerations.
Examples of qualitative considerations include the following.
The level of exposure to climate-related risks | Key factors to consider in assessing the level of exposure include:
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Differences in key assumptions used in estimating the recoverable amount and those disclosed outside the financial statements | In some cases, assumptions used in estimating the recoverable amount may differ from those disclosed outside the financial statements (e.g. in the front part of the annual report or other general purpose financial reports). In such cases, consider whether users need to understand the differences to reconcile the information in the financial statements and other general purpose financial reports. |
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