The International Sustainability Standards Board (ISSB) has voted unanimously to remove the words 'enterprise value' from the objective and definition of materiality in IFRS S1, following guidance from the IFRS staff at its board meeting in Montreal on 19 October.
Most board members highlighted how they liked the term, co-vice-chair Jingdong Hua said it captured the "essence" of the standards and board member Michael Jantzi said it "anchor[ed] the definition of materiality".
But for others, the term wasn't the right one. For example, Richard Barker said it "was the wrong focus", although it had been a helpful "shorthand for financial materiality".
The IFRS staff had proposed dropping the definition of enterprise value and that the words 'assess enterprise value' be removed from the [draft] S1 objective and definition of materiality. Reasons for doing so included the fact that feedback from the consultation had highlighted inconsistencies with the IASB's Conceptual Framework. Some respondents, including some users, expressed concerns that the use of enterprise value may unduly narrow the scope of sustainability-related financial disclosures and the term 'enterprise value' has a particular and potentially conflicting definition in the European standards.
Chair Emmanuel Faber said: "I resonate with the idea of an anchor. If we had to use a filter there should only be one, and that is the IAS 1 definition of financial materiality – and we have it. It is a precious gift that we have in our legacy and super strong link to the accounting world."
Philosophically, board member Ndidi Nnoli-Edozien noted that the ISSB standards setting effort were still in movement, “we haven’t anchored yet, so maybe we don’t need an anchor”.
Faber liked the staff recommendation to look at the Integrating Reporting (IR) Framework to find a new term to better define the idea behind 'enterprise value'.
"The IR is a wonderful opportunity, and I would encourage us to focus on that to find a new anchor," he said.
For Barker, IR serves a different purpose and he would rather focus on some of the language that already exists in the IFRS standards.
Co-vice-chair Sue Lloyd acknowledged that IR served a different purpose but said, "there is 'notions of value' in the framework that could be used".
The board voted in line with the staff recommendation to remove 'enterprise value' and look at the IR framework to better describe the connection between sustainability and enterprise value. The staff will come back to the board with proposals.
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