…Destroying Energy Security, Part 1…
These three articles examine the potential effects of incorporating climate change and sustainability measurements in audited financial statements.
Note that the SEC’s current proposals are restricted to climate change, while international organizations also include sustainability measurements.
While many groups, such as Climate Action 100+, are trying to coerce corporations into including ESG measures in their reporting, these articles show how ESG measures can be made a legal requirement.
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The Financial Accounting Standards Board (FASB) establishes the accounting rules, i.e., Generally Accepted Accounting Principles (GAAP), that US security law requires all publicly traded companies to follow.
Every publicly traded company must have its annual report audited by a public accounting firm, and the firm must certify that the company’s financial statements comply with GAAP, or note why they haven’t.
For example, here is a quotation from the GE Compony’s annual report:
DELOITTE & TOUCHE LLP
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for each of the years in the two‐year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
Because of the rules established by the FASB, Americans can be reasonably assured that their investments are based on accurate financial information. Rules that are enforced by the law.
It’s important to note that banks and institutional investors also rely on these certifications when they provide funds to corporations, such as for working capital or new investments.
The integrity of the FASB is crucial to the safe operation of America’s financial system. Retirement accounts, for example, would be put in danger if GAAP rules were fiddled with for political reasons.
But who oversees the FASB?
The FASB is a not-for-profit organization, as is The Financial Accounting Foundation (FAF) that oversees the FASB.
Here are quotations from the FASB website:
Established in 1973, the Financial Accounting Standards Board (FASB) is the independent, private sector, not-for-profit organization based in Norwalk, Connecticut . . .
The Financial Accounting Foundation (FAF) supports and oversees the FASB. Established in 1972, the FAF is the independent, private-sector, not-for-profit organization based in Norwalk, Connecticut, responsible for the oversight, administration, financing, and appointment of the FASB and the Governmental Accounting Standards Board (GASB).
FASB members are appointed by the FAF Trustees generally for 5-year terms; they may serve up to 10 years.
Until now, Americans could trust that the FASB would establish unbiased, accounting principles without political interference.
But is this about to change?
Here is a quote from the proposed FAF Strategic Plan:
Goal #6: Engage with stakeholders, regulators, and Congress to determine the appropriate way, if any, for the organization to contribute to future sustainability reporting.
We remain focused on overseeing the Boards in establishing and improving high quality financial accounting and reporting standards. However, we recognize there is growing demand by investors and other users of financial reports for greater consistency and comparability in reporting related to sustainability. Recent developments–including the establishment of the International Sustainability Standards Board (ISSB) by the IFRSF and the U.S. Securities and Exchange Commission’s proposed rule making for climate disclosures by public companies–are shaping the future sustainability reporting landscape. Given our commitment to the quality and integrity of financial accounting and reporting standard setting globally, we will actively monitor and engage with stakeholders, regulators, and Congress to ensure our organization can constructively contribute, as appropriate, to any future standard setting relating to sustainability reporting.
It should be noted that events in Canada could presage events in the United States. Here is a quotation concerning Canada’s adoption of sustainability standards.
Canada has committed to adopting the International Financial Reporting Standards (IFRS) new Sustainability Disclosure Standard for sustainability-related disclosures (IFRS S1) and climate related disclosures (IFRS S2).
Note the references to the IFRS.
Who are the IFRS and ISSB?
The IFRS has had a long, constructive working relationship with the FASB, while the ISSB is brand new.
Part 2 will examine the IFRS and ISSB.
In the interim, this article should be forwarded to your family and friends so they will have the background needed when they become aware of the issue.
Let others know about this article by using this link in an email https://bit.ly/3C1a5Xd
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