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Stathis Gould  | 

Decisions on reporting boundaries need to be informed and transparent if investors and other stakeholders are to be able to compare and benchmark non-financial performance. Seeking to address this need, and a lack of guidelines in the area, the Climate Disclosure Standards Board (CDSB) has a released a paper, currently open for consultation, that nails down the critical issues for groups of companies in determining boundaries for non-financial reporting. Proposals for Boundary Setting in Mainstream Reports discusses the extent to which non-financial reporting should include information about the activities of a parent company and its subsidiaries, joint ventures, associates, investees, suppliers, and upstream and downstream activities.

The paper explains how organizational boundary setting affects the usefulness and understandability of non-financial information. The CDSB has usefully navigated the complex and multifaceted issue of boundary setting, which is caused by various reporting frameworks and regulations, and because the financial world has traditionally been largely disconnected from the physical world in reporting.

The language of boundary setting is derived from multiple disciplines and is defined in various ways, including in financial reporting (IFRS 10, 11, and 12), integrated reporting (International Integrated Reporting Framework), and sustainability reporting (Global Reporting Initiative, Sustainability Accounting Standards Board (SASB), and Greenhouse Gas Protocol, among others).

The application of the concept of consolidation used in financial reporting to non-financial reporting extends the scope and content of disclosure beyond those matters where an organization has direct control or significant influence. The problem is that the various standard setters differ in their requirements, although there is a high degree of commonality between the International Integrated Reporting Framework, the SASB, and the CDSB’s Reporting Framework, which are all focused on providers of financial capital as the primary user. These frameworks recommend that financial information beyond financial consideration should be reported only where necessary for investors to understand the organization’s performance with respect to non-financial areas of performance and impact.

The CDSB makes six proposals to encourage a standardized and practical approach to organizational boundary setting in mainstream corporate reporting. Mainstream reporting includes the financial statements as well as other information outside financial statements that assists in the interpretation of a complete set of financial statements or improves users’ ability to make efficient economic decisions, such as management commentary or management discussion and analysis.

I encourage you to respond to CDSB, or in our comments section below, with any suggestions regarding the design and application of these proposals. The proposals are summarized below:

Proposal 1: Clarify the link between the objectives of non-financial reporting, materiality, the audience for reporting, and organizational boundary setting

This proposal is designed to help reconcile a wider stakeholder view of what is material for disclosure while also recognizing the limitations of matters over which the organization has control or influence.

Where the objective of non-financial reporting is to inform investors on how management uses and manages resources for organizational success, the boundary of the organization can be the organization as understood for financial consolidation purposes (i.e., entities the reporting organization has control and influence over). Risks arising beyond the organizational boundary, such as supplier vulnerability, would be reported as risks. Where the objective is to demonstrate to society the organization’s stewardship and accountability to the environment and society, the reporting boundary might extend beyond those entities and activities over which the company has control and influence. But the difference between these objectives needs to be understood and distinguished.

What does this mean in practical terms? Where non-financial reporting requirements are added to existing mainstream reporting requirements, the boundary used for existing mainstream reports should apply equally to non-financial reporting requirements. If any information is required about the outcomes or impacts of business activity beyond the reporting boundary used for mainstream reporting, the circumstances in which such information should be provided should be specified and the resulting information separately labeled.

Proposal 2: There should be a single, standardized approach to group organizational boundary setting in mainstream reporting (that should have the characteristics outlined in proposals 3-6)

Non-financial information can be prepared at activity, facility, or entity level, often because of the requirements specified by regulators. Investors need consolidated non-financial information disclosures for corporate groups, much as they need, and rely on, consolidated financial statements. Using IFRSs, consolidation does not involve aggregating local statutory accounts prepared for each of the entities within the consolidation. Rather, consolidation requires the preparation of a group account. Where an organization is subject to different reporting demands (including boundary demands) from local authorities, these should be disregarded for consolidation as these reports are local statutory reports that cannot be the base for a group report.

The CDSB proposes that a similar approach to financial consolidation is taken for group non-financial information reporting and that such group disclosures should not simply aggregate the facility or entity level reporting prepared according to national requirements or voluntary initiatives as they can be defined differently in each country and for each business, making comparisons difficult. Furthermore, in the case of large conglomerates with intercompany trading, an approach that simply aggregates national, entity level reporting could result in double counting, particularly where two or more entities within the group have prepared entity level results with different boundaries.

Proposal 3: The consolidated group boundary should align with consolidated profit and loss/comprehensive income financial reporting

The CDSB proposes that non-financial information disclosure should be aligned with the preparation of a profit and loss (P&L), or comprehensive income statement, as non-financial reporting reflects resources used and affected during the year, much as income statements reflect revenue earned and expenses incurred. It follows that the classification of joint arrangements as joint operations or ventures should follow IFRS 11 for non-financial reporting purposes.

Proposal 4: Non-financial information should be reported by the user of resources (the user is the party that has the right to use and/or direct the use or operation of the resource and to derive or control output or utility from the use of that resource)

The CDSB proposes that the user of resources should report outcomes from the use of resources for conducting business activities because the definition of user aligns with the definition of control in IFRS 10. Additionally, the user of an asset is, in many cases, more likely to have access to information that supports the production of disclosures on results and performance.

Proposal 5: No distinction should be made between financial and operating leases for non-financial information reporting purposes

As the user of an asset or resource should report on the results and outcomes from that use, the type of arrangement under which use is permitted becomes irrelevant to reporting. Therefore, the CDSB proposes that no distinction should be made between financial and operating leases for non-financial reporting purposes.

Proposal 6: Policies applied for the preparation of consolidated climate change-related disclosures should be stated

As with financial statement preparation, the CDSB proposes a similar approach for the preparation of explanatory notes to non-financial information, including a narrative on how the group’s organizational boundary has been determined and what it includes.


Based on the assumption that investors demand consistency in financial and non-financial reporting, then action is needed. Do these proposals work in practice to help meet this objective?

Stathis Gould

Director, Member Engagement and PAIB

Stathis Gould is responsible for IFAC member engagement and leads IFAC’s advocacy for professional accountants working in business (PAIB) and the public sector. A key element of his work is developing thought leadership and guidance in support of enhancing the recognition of and confidence in professional accountants as CFOs, business leaders, and value partners in the context of sustainability/ESG, data and digital transformation, and other emerging business trends and issues.

Before joining IFAC, Stathis worked at the Chartered Institute of Management Accountants (CIMA), where he was responsible for planning and overseeing a program of policy and research that promoted and developed management accountancy. Prior to serving the accountancy profession, he worked in various roles in the private and public sectors in the UK. There, Stathis delivered financial and performance management in the National Health Service and worked for a technology company responsible for delivering the localization of software and content across the globe.

Stathis holds a BA in European Business Studies, an MBA (with distinction), and a postgraduate certificate in Environmental Management, Economics, and Policy. He is a member of the Institute of Management Accountants.