Audit watchdog the Financial Reporting Council (FRC) has said auditors should test and challenge board and management’s assessment of the implications of climate change outlined in financial statements.
Following a major review of how companies and auditors report on the impact of climate change, the FRC determined that boards and companies, auditors, professional associations, regulators and standard-setters need to do more.
The review considered how the quality of information provided to investors could be improved to help them make informed decisions.
The FRC said UK professional bodies and audit regulators are responding to climate change, but approaches differ in terms of substance and granularity regarding references to climate-related reporting and the impacts of climate change.
FRC chief executive Jonathan Thompson said: “Users of corporate reports expect more from companies, auditors, regulators and standard setters in terms of climate change reporting. While this review highlights some bright spots of better practice in both corporate reporting and auditing, we also found that more needs to be done.
“I know that this is a difficult time to ask for more, but now is the time for all of us to raise the bar.”
Following the review the FRC has encouraged companies to voluntarily report on climate-related disclosures.
The body encouraged companies to report against the Task Force on Climate-related Financial Disclosures’ (TCFD) 11 recommended disclosures using the Sustainability Accounting Standards Board (SASB) metrics.
The TCFD, established in December 2015, was tasked with reviewing how the financial sector could take account of climate-related issues.
The TCFD then developed a framework to help public companies and other organisations more effectively disclose climate-related risks and opportunities through their existing reporting processes.
The FRC will consider how best to help companies to achieve reporting under TCFD and SASB that meets the needs of investors.
The watchdog is considering increasing the focus on climate change considerations in its ongoing corporate reporting review and audit quality review monitoring work where relevant.
It is also mulling undertaking a project considering the role of assurance, and responsibilities of audit committees in this area.