IFRS (with an "s" at the end)

NOTE: All acronyms correspond to their meaning in English.

For more than twenty years, International Financial Reporting Standards (IFRS) have existed around the world with the aim of unifying accounting language across countries.

IFRS are issued by the International Financial Reporting Standards Board (IASB) with the support of the International Financial Reporting Foundation (IFRS). In some countries, IFRS is required, while in others it is a permitted standard. In a country where IFRS is required, all companies present their financial reports using that accounting language. If IFRS is recommended, companies may present their financial reports using IFRS or another standard, such as Generally Accepted Accounting Principles (GAAP).

In 2021, IFRS created the International Sustainability Standards Board (ISSB) to develop a common language on sustainability, also known as Non-Financial Reporting. The ISSB (focused on sustainability) and the IASB (focused on accounting) collaborate closely under the supervision of IFRS.

In 2023, the ISSB introduced the Sustainability Financial Reporting Standards ( IFRS with an "s" at the end ), which took as their reference the standards developed by the Sustainability Accounting Reporting Board (SASB), which merged with IFRS and introduced the concept of financial materiality.

IFRS (with an "s" at the end) is a set of guidelines for companies to disclose information about the risks and opportunities that Environmental, Social and Governance (ESG) issues pose to the company, using a financial materiality approach.

To date, two IFRSs have been published: 1) the General Requirements IFRS and 2) the Climate Change IFRS. IFRS S1 establishes that companies must disclose information about the risks and opportunities (actual and potential) that ESG issues may pose to their financial performance, economic situation, or cash flows in the short, medium, and long term. In this section, the company is expected to identify its financial materiality; that is, those ESG issues that may affect the company's financial performance.

IFRS S2 focuses on climate risks and opportunities, always using a financial materiality approach. For example, a company can present an analysis of how climate phenomena such as El Niño or La Niña can affect its operations or how the same issue can represent an opportunity. Additionally, the standard requires companies to report on their greenhouse gas emission reduction targets, as well as their mitigation and adaptation strategies.

In countries where IFRS (the accounting standard) is mandatory, IFRS (with an "s" at the end) will also be a legal requirement, and companies will have to submit their Financial Reports alongside their Non-Financial Reports. Currently, Mexico and Costa Rica have issued their own IFRS, and the first reports are due in 2026.

The topic can be complex, so here are some recommendations to get you started:

1. Identify whether IFRS (accounting standards) are required where the company operates. For example, in Colombia they are required for some companies, and in Guatemala they are permitted. Where they are required, they are mandatory. This information can be found at the following IFRS link: https://www.ifrs.org/use-around-the-world/use-of-ifrs-standards-by-jurisdiction/

   
   

2. Identify whether IFRS (accounting standards) are mandatory in a country where IFRS (with an "s" at the end) has been adopted nationally. This information can be found in the National Association of Public Accountants or in the organization that has designated IFRS as the jurisdictional authority. Currently, in Latin America, IFRS has been adopted in Mexico, Costa Rica, Brazil, and Chile.

   
   

3. Check whether there are any exclusions and/or specific requirements for domestic adoptions. In Mexico, IFRS also applies to small businesses, and in Costa Rica, reporting varies depending on taxation.

   
   

4. Identify the companies to which IFRS applies. According to national requirements, narrow the list of companies to which IFRS applies, as the reports must be submitted by company and on the same date as the financial information.

   
   

5. Identify the financial materiality of companies to which IFRS applies. This can be complex, especially if the company is under a parent company. However, you can use the SASB Materiality Finder, which can be found at the following link: https://sasb.ifrs.org/standards/materiality-finder/

   
   

6. Identify risks and opportunities (actual and potential) for material topics. Financially analyze how the ESG topics you identified as material can represent a risk or an opportunity for the company's operations. As an example, imagine a beverage company. For such a company, water (a material or relevant topic) represents a financial risk if there is a water shortage, while it can be an opportunity if the resource is optimized.

   
   

7. Set decarbonization-related goals. IFRS S2 requires companies to have decarbonization goals. If you haven't started yet, measure your carbon footprint and identify your potential goal, timeframe, and action plan to achieve it. Also, identify mitigation and adaptation measures.

   
   

8. Look for synergies between finance and sustainability. Sometimes, the two areas don't talk together, and IFRS presentation requires both approaches, so look for synergies and develop a joint work plan.

For more information, please refer to the IFRS documents:

IFRS S1: https://www.ifrs.org/content/dam/ifrs/publications/pdf-standards-issb/spanish/2023/issued/part-a/es-issb-2023-a-ifrs-s1-general-requirements-for-disclosure-of-sustainability-related-financial-information.pdf?bypass=on

IFRS S2 : https://www.ifrs.org/content/dam/ifrs/publications/pdf-standards-issb/spanish/2023/issued/part-a/es-issb-2023-a-ifrs-s2-climate-related-disclosures.pdf?bypass=on

GUIDE FOR REPORT PREPARATION: https://www.ifrs.org/content/dam/ifrs/supporting-implementation/issb-standards/es-issb-voluntary-application-preparers.pdf