Response to the Australian Accounting Standard Board’s question on the appropriateness of an enterprise value focus

Main points:

  • The AASB has been running its own consultation on the proposed IFRS S1 and S2.
  • The AASB asked: whether enterprise value was the most appropriate approach when considering sustainability-related financial reporting; and, whether the proposals create challenges for assurance.
  • My response addresses: different understandings of ‘enterprise value’; what research tells us about the consequences for sustainable development in the absence of impact reporting; and, issues in determining enterprise value in the absence of impact reporting.
  • There’s also the matter of whether metrics proposed from SASB have anything to do with ‘enterprise value’.

To:       Keith Kendal, Chair, Australian Accounting Standards Board

From:   Professor Carol Adams, Professor of Accounting, Durham University Business School.

17th June 2022

AASB consultation on the ISSB’s Draft IFRS S1 and S2

Thank you for the opportunity to respond to your consultation. I address your specific questions and attach my response to the ISSB on the IFRS S1 Exposure Draft for your information. To add to my background noted therein, I am an Australian citizen and Australian resident.

My responses to your questions in relation to the IFRS S1 exposure draft are below:

A1 Is focusing on an entity’s enterprise value the most appropriate approach when considering sustainability-related financial reporting? If not, what approach do you suggest and why? 

No. Many of the financial disclosures included in Appendix B to the draft IFRS S2 (which are derived from SASB Standards) are not connected with enterprise value. The term ‘enterprise value’ is interpreted differently. While, it is increasingly considered from a multiple capitals perspective[1], it is primarily understood to be a financial number.  Either interpretation will result in that being prioritised above sustainable development, particularly given that the relationship between sustainable development and enterprise value is little understood.

There is substantial research indicating that the ISSB’s conceptual framing won’t lead to its stated desired outcomes of: harmonisation of reporting practices; facilitating the achievement of sustainable development; and, reducing greenwash. Conceptual frameworks influence thinking (or lack of it) and (in)action (see Adams, 2017; Ahmed Haji and Anifowose 2016; Narayanan V and Adams 2017; Rodríguez-Gutiérrez, Correa and Larrinaga 2019). 

Before an organisation can determine with confidence how sustainability issues will affect its financial statements and ‘enterprise value’ it must first identify its material impacts on economies, society, and the environment. Such impacts lead to risks and opportunities. Reporting on impacts, as most large Australian companies do using the GRI Standards (see KPMG, 2020a,b),  is an important precursor to determining likely consequences for enterprise value. Corporate impacts are relevant to governments (and their agencies) and a broad range of stakeholders. Further, investors use this impact data to form their own judgements about implications for enterprise value[2]. Not being required to consider and report on material impacts on sustainable development will legitimate their non-disclosure – greenwashing.

Accounting academics researching sustainability reporting that responded to the IFRS Foundation Trustees’ Consultation Paper on Sustainability Reporting were strongly opposed the proposed conceptual framing (see Adams and Mueller, 2022 for an analysis).  

The proposed IFRS S1 ED requires a considerable amount of judgement on terms that stakeholders across geographic regions interpret differently, including ‘enterprise value’. This will facilitate greenwash and hamper the ability to compare organisations.  

My recommendation to national governments, their agencies and stock exchanges, is that they mandate, or at least encourage, the use of GRI Standards alongside ISSB Standards.  My recommendation to the ISSB is that they assist with that process and focus on developing requirements for sustainability-related financial reporting and associated guidance for companies that follow GRI Standards (see Adams et al 2021 for a summary of research on issues regarding the materiality process). 

Part B Matters for comment relating to specific proposals in Exposure Draft on [Draft] IFRS S2

B1 & B2. Scope 3 GHG emissions can be significant and have significant consequences for climate change. They should therefore be disclosed in a manner consistent with GRI 305 which is used by most large Australian companies. The implications for ‘enterprise value’, if any, with respect to some emissions is unclear. 

B3. The starting point for emissions disclosures should be the indicators in the GRI Standards. Many of the indicators in Appendix B, which draws on SASB Standards, are not climate related financial disclosures. They have also been developed for a US market and need to be subject to a broader consultation.

B4. Following the GRI Standards should lead to Australian companies reporting on their material impacts from an Australian perspective. Such matters would have long term consequences for enterprise value.

Part C Matters for comment relating to both Exposure Drafts on [Draft] IFRS S1 and [Draft] IFRS S2

The unanswered questions in this section have either been addressed in my response to the ISSB consultation (attached) or are somewhat redundant given those responses and further responses to this AASB consultation.

C4. No. Reporting on risks and opportunities is useful, but overall, the proposals would have limited use. Users of general-purpose financial statements would not know whether reported information using IFRS S1 and IFRS S2 was complete, particularly with respect to risk to the organisation arising from climate change and broader sustainable development issues. Reporting on such risks is currently at a low level including in high impact companies (see Abhayawansa and Adams, 2022).

C5. Yes, the proposals create assurance challenges. Research is clear that the scope of sustainability report assurance exercises is limited, often to providing assurance over numbers (see Farooq and de Villiers 2017). Narrative reporting on risks, opportunities, their consideration in strategy and governance oversight that is critical to assessing enterprise value. Reporting on these matters is low (Abhayawansa and Adams, 2022). Further, there is a huge amount of judgement required for disclosures concerning terms that are understood differently and under the umbrella of a conceptual framework that does not fit.

C9. There is a cost to achieving sustainable development as the standards will encourage focus on a limited range of issues and then only as they are perceived to affect enterprise value (which is typically thought of in financial terms and in the short term).

Part D

D1. Sustainability reporting standards should be separate from financial reporting standards. However, a broader focus incorporating the impacts of organisations on sustainable development (e.g. by adopting GRI Standards) is needed.

D2. No, in the absence of corporate impact reporting, the proposals are insufficient and too narrow in focus to serve the Australian economy. Biodiversity, water availability and energy sources are key issues. 

Additional comments on this post are on LinkedIn here


Abhayawansa S and Adams (2022) CA Lessons from COVID-19: A conceptual framework for non-financial reporting inclusive of risk management. Meditari Accountancy Research. Vol. 30 No. 3, pp. 710-738. DOI 10.1108/MEDAR-11-2020-1097

Adams, CA, (2017) Conceptualising the contemporary corporate value creation process, Accounting Auditing and Accountability Journal 30 (4) 906-931

Adams CA, Alhamood A, He X, Tian J, Wang L. and Wang Y (2021) The Double-Materiality Concept: Application and Issues, Global Reporting Initiative.  Pro bono contribution.

Adams, C.A., and Mueller, M (2022) Academics and policymakers at odds: the case of the IFRS Foundation Trustees’ consultation paper on sustainability reporting, Sustainability Accounting Management and Policy Journal.Available at

Ahmed Haji, A. and Anifowose, M. (2016), The trend of integrated reporting practice in South Africa: ceremonial or substantive?, Sustainability Accounting, Management and Policy Journal, Vol. 7 No. 2, pp. 190-224.

Farooq, M.B. and de Villiers, C. (2017), “The market for sustainability assurance services: A comprehensive literature review and future avenues for research”, Pacific Accounting Review, Vol. 29 No. 1, pp. 79-106.

KPMG (2020a) Australian supplement to the Global Sustainability Reporting Survey

KPMG (2020b) The KPMG Survey of Sustainability Reporting [link]

Narayanan V and Adams CA, (2017) Transformative change towards sustainability: the interaction between organisational discourses and organisational practicesAccounting and Business Research 47(3): 344-368

Rodríguez-Gutiérrez, P., Correa, C. and Larrinaga, C. (2019), Is integrated reporting transformative? An exploratory study of non-financial reporting archetypes, Sustainability Accounting, Management and Policy Journal, Vol. 10 No. 3, pp. 617-644.

[1] See my response to the IASB’s proposed revised Management Commentary re the development of the multiple capitals approach.

[2] See panel discussion here.

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  1. I agree completely. Well formulated and argued.

    The frustrating side of this is that will either be no or limited response and that response will not address the points raised.

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