(a) i. Basic criticisms of the IFRS reporting framework

Most of the criticisms center on the following points:

 High implementation, application and transition costs especially if the adoption of IFRS is needed or required by small and medium sized businesses (SME’s). It will be a big disadvantage for SMEs as they will incur the large transition costs and the level of complexity of IFRS may not be absorbed by SMEs;

 Heavy reliance of fair-value measurement which is subjective and more prone to increase volatility in the value of assets;

 Limited coverage of non-financial drivers as issues such as carbon footprint, human-capital development and supply-chain resilience sit largely outside IFRS, yet strongly influence enterprise value;

 Converting to IFRS makes the IASB the monopolist in terms of setting the standards resulting in lack of competition;

 Layer upon layer of standards and disclosure check-lists can overwhelm preparers and confuse lay users;

 The benefits of converting or transiting to IFRS cannot be seen until later point due to the fact that it takes some years for the harmonisation to have sufficient years of financial statements to be prepared under IFRS to improve consistency;

 Extraordinary loss or gain is not allowed in the new IFRS and this remains an issue;

 Financial statements emphasise past transactions; while also considering future cash-generating ability, climate threats or intangible value creation;

 IFRS reporting framework like the traditional reporting model was designed primarily for equity investors; broader stakeholders often find the information irrelevant or inaccessible; and

 Multinational companies may have to change the internal systems to make it compatible with the new reporting standards.

ii. Progress towards adoption of sustainability reporting The concept of sustainability is that organisations and individuals should meet their own needs today without compromising the needs of future generations. Organisations tend to communicate economic, environmental and social impacts, their sustainability activities through sustainability reports. Even though sustainability reporting is largely voluntary, many companies worldwide issue annual reports on sustainability and corporate responsibility. These companies represent all sectors and industries across the globe.

More and more companies are recognising the need to make their operations more sustainable. Over the past twenty years or more, the number of organisations that have made sustainability a key strategic focus has increased significantly.

Global adoption of sustainability reporting

 International Sustainability Standards Board (ISSB) was created in 2021. The ISSB Standards aim to enhance investor-company dialogue by providing decision-useful, globally comparable sustainability-related disclosures;

 In June 2023, general sustainability-related disclosures (IFRS S1) and climate-related disclosures (IFRS S2) were published;

 Recently, it was discovered that over 1,000 companies have referenced the International Sustainability Standards Board (ISSB) in their reports, and 30 jurisdictions are making progress towards introducing ISSB standards in their legal or regulatory frameworks;

 In addition, a few governments have introduced mandatory sustainability reporting. For example: Corporate Sustainability Reporting Directive (CSRD) and European Sustainability Reporting Standards (ESRS) phased in from financial year 2024. In US, SEC‟s proposed climate-disclosure rule (still pending finalisation); voluntary Sustainability Accounting Standard Board (SASB) and Task Force on Climate related Financial Disclosures (TCFD) alignment amongst large filers;

 French law requires the annual reports of companies to include information on their environmental and social performance;

 All state-owned companies in Sweden must present a sustainability report using Global Reporting Initiative (GRI) guidelines on a „comply or explain‟ basis;

 Also, some stock exchanges have sustainability reporting as a listing requirement. One of such stock exchange is the Johannesburg Stock Exchange in South Africa, which has been a leading light in this area; and

 The IFRS foundation’s progress report highlights the importance of introducing sustainability-related disclosure requirements into regulatory frameworks through the adoption or use of ISSB Standards.

Adoption of sustainability reporting in Nigeria

 Nigeria is a front-runner in Africa, with the Financial Reporting Council (FRC) establishing the Adoption Readiness Working Group (ARWG) in June 2023 to drive the adoption of IFRS S1 and S2 standards. IFRS Adoption Roadmap outlines steps for implementing IFRS S1 and S2 standards in Nigeria;

 In March 2024, Nigeria unveiled its IFRS adoption roadmap, outlining necessary steps for implementing these standards;

 The Nigeria Exchange Group (NGX) introduced Sustainability Disclosure Guidelines in 2018, mandating publicly listed companies to report their sustainability performance. Sustainability Disclosure Guidelines and NGX’s guidelines require publicly listed companies to report sustainability performance;

 Nigeria has also enacted the Climate Change Act and launched an Energy Transition Plan, demonstrating its commitment to sustainability and reducing greenhouse gas emissions. The Act provides a framework for mainstream climate change management at a national level; and

 Energy transition plan aims to reduce energy poverty and climate change crisis, with a goal of net zero emission by 2060.

iii. Key components of the reporting standards and inputs for sustainability report

A number of organisations have produced codes of practice and guidelines for companies to follow when preparing their sustainability reports. Two such organisations are The Global Reporting Initiative (GRI) and The Sustainability Accounting Standards Board (SASB). GRI Sustainability Reporting Standards (GRI Standards) and sustainability accounting standards published by SASB provide disclosure guidance on sustainability reports. The content of these reports depends on which of the sustainability standards each reporting entity adopted.

The GRI standards are structured as a set of interrelated standards issued in a modular structure and comprise:

 Universal standards (100 series);

 GRI 101: Foundation – sets out reporting principles;

 GRI 102: General disclosures provides contextual information about the organisation and its sustainability practices; and

 GRI 103: Management approach explain how an organisation manages a material topic and to be used for each material topic in a sustainability report.

b. Different types of capital play key roles in the value creation process; explain briefly the roles of each type of capital.