Extracts from relevant Accounting Standards for Private Enterprises
3856 Financial Instruments, paragraphs 3856.05(f), 3856.16-.19, and 3856.42
Generally, financial instruments are measured at cost or fair value. Climate-related matters may affect the value of financial instruments by providing evidence of impairment. For example, physical risks (e.g., wildfires, floods) or transition risks (e.g., regulatory, legal, and legislative changes) could negatively affect a borrower’s ability to meet its debt obligations to the lender. A loan could have specific emission (debt) covenants and certain emission targets to meet. Furthermore, as described in IFRS Foundation published material, assets could become inaccessible or uninsurable, affecting the value of collateral for lenders.
Under Section 3856, entities are required to assess if there are any indications of impairment at each reporting period for financial assets measured at cost or using the cost method. Entities are also required to disclose the carrying amount of impaired financial assets, by type of asset, and the amount of any related allowance for impairment.
Fair value measurement
Appendix A of Section 3856, Financial Instruments, paragraph A7
Climate-related matters may affect the fair value measurement of assets and liabilities in the financial statements, as per IFRS Foundation publication. For example, market participants’ views of potential climate-related legislation surrounding greenhouse gas emissions could affect the fair value of an asset or liability.