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ISSB sees progress on climate standards adoption

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The International Sustainability Standards Board reported progress on adoption of its climate-related disclosures by companies around the world.

The ISSB issued a progress report Tuesday indicating that more than 1,000 companies have referenced the board in their reports and 30 jurisdictions are making progress on introducing ISSB standards in their legal or regulatory frameworks. The International Financial Reporting Standards Foundation, which oversees the ISSB and the International Accounting Standards Board, presented the findings to the Financial Stability Board on Tuesday. The report also discusses the alignment of disclosures with the Task Force on Climate-related Financial Disclosures recommendations, which the IFRS Foundation took over responsibility for recording climate-related disclosure progress when the TCFD disbanded in 2023.

The release of the report comes amid the United Nations’ COP29 climate change summit in Azerbaijan this week.

The report indicated that 82% of companies disclosed information in line with at least one of the 11 TCFD recommendations as companies around the world turn their attention to climate-related disclosures. However, less than 3% of these companies are reporting in line with all 11 TCFD recommended disclosures, so few companies offer disclosures covering the company’s entire climate-related governance, strategy, risk management or metrics and targets. The report includes information about the status of the 30 jurisdictions that are progressing toward introducing ISSB standards in their regulatory frameworks, along with insights into how companies are transitioning from disclosures prepared using the TCFD recommendations to disclosures prepared using ISSB standards.

A separate analysis by the IFRS Foundation on some of the main features in these 30 jurisdictional frameworks found that jurisdictions see the value of Scope 3 greenhouse gas emissions disclosures. All 29 jurisdictions that have finalized or published proposals on climate-related disclosures have included Scope 3 GHG emissions disclosure requirements, with some allowing or proposing brief extensions of transitional reliefs to prepare for the requirements.

Jurisdictions also see the value of including industry-specific disclosure requirements, according to the analysis. Some 28 jurisdictions have included or are considering requirements for industry-specific disclosure. Only two of the 30 jurisdictions have signaled their intention to make industry-specific disclosure voluntary, at least initially.

“This progress report underscores the significant and encouraging progress in disclosure of climate-related information,” said ISSB chair Emmanuel Faber in a statement. “But further action is needed to address the fact investors are still not receiving the information they need to assess and price appropriately climate and other sustainability-related risks and opportunities. Through jurisdictional initiatives and the voluntary choices companies are making, often in response to investor demand, we continue to see momentum build. The introduction of sustainability-related disclosure requirements into regulatory frameworks through the adoption or other use of ISSB standards, building on the strong foundations laid through the TCFD recommendations and progressing towards a more comprehensive and assurable set of requirements, is of vital importance for the healthy functioning of capital markets around the world.”

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International Sustainability Standards Board chair Emmanuel Faber at the Bloomberg Sustainable Business Summit in London.

The ISSB found that 90% of the jurisdictions have included or are considering requirements for disclosure covering all sustainability-related risks and opportunities over time. Some jurisdictions are initially focused on the disclosure of climate-related risks and opportunities.

In some cases, jurisdictions have moved closer to the ISSB standards compared to their initial proposals in response to calls from stakeholders for greater alignment with ISSB standards and to secure comparability of disclosures by adhering to the global baseline.

One important aspect of the introduction of ISSB standards into regulatory frameworks is that a number of jurisdictions intend to introduce industry-specific disclosure requirements for the first time. Many of those stem from the standards were originally produced by the Sustainability Accounting Standards Board, which was absorbed into the ISSB. The SASB standards provide an important component of the ISSB’s global baseline of disclosures supporting high-quality implementation of IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information.

The Financial Stability Board also published its 2024 progress report on Achieving Consistent and Comparable Climate-related Disclosures on Tuesday, summarizing the main findings from the IFRS Foundation’s report. 

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Accounting

Accountants shouldn’t drown in employee purchase reconciliations

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Among the challenges accountants face is accounting for purchases employees make to get their work done. While the expense report process attempts to address this, it often falls short in providing accurate accounting because it relies on non-accountants entering financial data. The result is typically a time-consuming process for accountants, who must review, reconcile and correct the accounting entries submitted by employees.

The emergence of virtual cards, especially when combined with AI-powered fintech apps, offers accountants a new approach to solving this long-standing challenge.

What is a virtual card?

As many may already know, virtual cards are a type of company-paid credit card that functions like a traditional, physical card with one key difference: There’s no physical card involved. This allows for the creation of an almost unlimited number of unique card numbers, highlighting the brilliance behind virtual cards: intended use.

The concept of “intended use” recognizes that employees have specific scenarios in mind when using a virtual card. This could be to cover the expenses involved in an upcoming business trip, purchasing construction materials for a job or covering necessary permits or fees for cell tower repairs.

Fintech apps can issue virtual cards to employees based on intended use. These apps leverage intended use to determine the appropriate accounting for purchases made with each virtual card. Utilizing virtual cards through a fintech app, the employee experience becomes streamlined, making the process user-friendly. Employees simply select an intended use from a list provided by their organization and enter the desired spending limit. Unlike expense reports, they do not need to enter accounting codes or other financial details. The fintech app automatically determines the correct accounting in the background, eliminating the need for employees to manage complex accounting information.

AI can help improve accuracy

While intended use allows fintech apps to predict the correct accounting, some intended uses allow for an amount of accuracy that isn’t adequate.

An example is the business trip intended use discussed above. The accounting accuracy depends on the chart of accounts for travel-related expenses. If the COA has only one account for travel, then the trip’s intended use will have the necessary accuracy.  If there are expenses for subaccounts such as airfare, lodging, ground transportation and so forth, the trip needs to involve more detail to have the necessary accuracy. This is where AI can help.  

Fintech apps can use AI to analyze purchases made with a given virtual card and its intended use to arrive at the precise accounting for each purchase. The AI involved analyzes large sets of purchases by employees, looking for patterns in accounting. AI is able to consider a wide range of parameters found in these purchases and consider a vast array of possibilities to arrive at the correct accounting.  AI is especially impressive for sophisticated, multidimensional COAs because of its ability to analyze complex patterns.

AI ensures accurate accounting happens automatically, thus avoiding the need for accountants to review the accounting prior to booking purchases into the general ledger. Some fintech apps can automatically make these bookings by posting them to the GL, delivering accountants a completely automated process.

Reconciling credit card statements

In addition, some fintech apps, when combined with virtual card use, can automatically reconcile credit card statements, saving dozens of hours of month-end accounting work. These apps compare the transactions on a statement with purchases made using virtual cards and, because the accounting for these transactions is already confirmed, mark them as reconciled.

They also flag transactions paid with a physical card, instead of a virtual card; how these are handled depends on the fintech app. Some apps integrate with expense management services to verify if accounting data is available for these transactions. If so, the app uses this data and marks the transactions as reconciled.

For transactions without expense management data, AI-enabled apps can automatically predict the appropriate accounting. These apps then give accountants the choice to either use this predicted accounting as final or treat it as an accrual until the transactions appear in the expense management service. In both cases, the apps mark the transactions as reconciled, resulting in a fully reconciled credit card statement, ready for period close.

Streamlining the process

AI-powered fintech apps create a streamlined purchasing and accounting process for both employees and accountants. Before purchasing a good or service, employees simply request a virtual card and indicate its intended use, eliminating the need to input accounting data manually.

These apps can save accountants hours of work by automating the correct accounting for employee purchases and reconciling monthly statements from card issuers, ensuring a smoother, more accurate and efficient process.

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Accounting

Sotheby’s pays $6M to settle NY sales tax evasion probe

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Sotheby’s Inc. agreed to pay $6.25 million to settle a New York state lawsuit that accused it of advising wealthy clients they could avoid sales taxes by falsely claiming they were buying art for resale purposes.

New York Attorney General Letitia James announced the deal in a statement Thursday. She said Sotheby’s employees from 2010 to 2020 encouraged clients to make the false claims even though they knew the purchases were actually for private collections or intended as gifts.

“Sotheby’s intentionally broke the law to help its clients dodge millions of dollars in taxes, and now they are going to pay for it,” James said. “Every person and company in New York knows they are required to pay taxes, and when people break the rules, we all lose out.”

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Sotheby’s Auction House in New York

Robert Caplin/Bloomberg

James sued Sotheby’s in 2020, accusing the auction house of helping a shipping executive use a false resale certificate to dodge taxes. The state later expanded the case by including allegations involving seven additional collectors and numerous Sotheby’s employees from across the organization, including its tax department.

In a statement, Sotheby’s said that it admitted no wrongdoing in connection with the settlement and was committed to full compliance with the law.

“These allegations relate to activity from many years ago — in some cases over a decade — and Sotheby’s provided much of the evidence which the AG used to obtain a settlement with the taxpayer referenced in the complaint six years ago,” the auction house said in its statement.

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Accounting

Discover delays filing over accounting disagreement with SEC

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Discover Financial Services said it will miss a deadline to file its quarterly report with regulators, citing disagreements with the Securities and Exchange Commission over its accounting treatment of a credit-card misclassification blunder. 

The company said in a filing Wednesday that it was unable to file the 10-Q form for the three months through Sept. 30 by the required date after SEC staff disagreed with “certain aspects of the company’s accounting approach for the card product misclassification matter.”

Discover disclosed last year that it overcharged merchants after misclassifying certain credit-card accounts into its highest pricing tier, and the Chief Executive Officer stepped down as compliance woes mounted. The credit-card company said in July that it had reached an agreement to settle class-action litigation with the affected retailers, and that it expected the $1.2 billion it already set aside for related liabilities to be enough to resolve the issue. 

Discover credit card
Discover credit card

Angus Mordant/Bloomberg

Discover expects that when it files its 10-Q form, it will likely reflect re-allocations to prior periods of about $600 million of the charge to other expenses recorded in its quarterly report for the period ended March 31, it said. The firm said that because the reallocations would reverse a charge to other expenses recorded for the first quarter, “this would result in an increase in pre-tax income by the same amount in the three months ended March 31, 2024 and the nine months ended September 30.”

Capital One Financial Corp. is expected to buy Discover in one of the biggest mergers announced this year. The SEC was reviewing Discover’s financial statements in connection with the pending merger, according to the filing. 

A representative for Discover declined to comment beyond the filing. A representative for Capital One didn’t immediately respond to a request for comment.

A late financial statement can be considered a financial reporting red flag and large companies go to great lengths to avoid missing SEC deadlines. In the filing Wednesday, Riverwoods, Illinois-based Discover said it likely won’t file under the allotted extension period of five calendar days because it needs more time to address the issues. The company also hasn’t determined if it will have to redo, or restate, its prior financial statements to address any potential accounting errors, it said.

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