For auditors, partners and heads of methodology in Dublin, London and everywhere in between.
If you work in audit in Ireland or the UK, climate stopped being someone else’s problem a while ago. It sits in your impairment models, your provisions testing, your going concern assessment and your review of other information. From 2026 it sits in a second place too: the sustainability assurance engagement that may or may not land on your desk, depending on your client base.
The hard part is that nobody has handed us a tidy new standard called ISA Climate. The risk arrives through the standards we already know, which makes it easy to miss and even easier to document too thinly. Here is what has actually changed, what it means for FRS 102 and IFRS reporters, and the responses regulators will look for.
The regulators are watching
The FRC and IAASA have both made climate a recurring theme of their inspection and thematic work. Files that state a conclusion on climate without showing the challenge behind it are the ones that come back with findings. Keep that in mind for everything that follows.
FRS 102: the risk is omission
FRS 102 has no climate section, and it never will. The periodic review that applies to periods beginning on or after 1 January 2026 brought the headline changes everyone talks about: Section 20 bringing leases onto the balance sheet, a five step revenue model in Section 23 and a refreshed Section 2 on concepts. Climate is handled through the requirements that were already there, and the FRC’s staff factsheet on climate matters is the practical guide.
The pattern worth remembering is this. Because FRS 102 relies more on historical cost and looks forward less than IFRS, the climate risk is rarely about challenging an elaborate scenario model. It is about spotting what is missing.
Four places to look:
Provisions and decommissioning (Section 21). Tighter environmental regulation can inflate restoration obligations. Shorter asset lives reduce the discounting effect. Public net zero commitments can create constructive obligations that nobody has booked. Where there are many similar sites, a portfolio approach may be appropriate. The new lease model also brings decommissioning into the cost of the right of use asset, an interaction most teams have not yet planned for.
Impairment (Section 27). Climate factors can reduce recoverable amount through lower cash flows, higher discount rates or shorter useful lives. If the narrative report talks about transition risk and the impairment model does not, that is management bias in plain sight.
Estimation uncertainty (Section 8). The test is whether a reader can actually understand the sensitivity. Boilerplate that could appear in any set of accounts is wallpaper, not disclosure.
Going concern (Sections 3 and 32). Physical disruption, customers lost on environmental grounds, covenants linked to sustainability metrics and the cost of transition all feed the forecast.
So under FRS 102 the response is less about building a forward view and more about completeness. Was the obligation recognised? Was the trigger identified? Does the disclosure actually say anything?
IFRS: the risk is credibility
For listed entities and groups reporting under UK adopted or EU adopted IFRS, the picture flips. IFRS has no climate standard either, but it has IAS 36, IAS 37, IAS 16, IAS 12, IFRS 9 and IAS 1, and the IASB’s educational material is clear that material climate effects must already be reflected through them.
Here the risk is rarely that something was left out. It is that something was modelled, and the model deserves a hard look. The usual suspects:
- IAS 36 impairment, where recoverable amount must capture transition and physical risk through cash flows, growth, asset lives and discount rates, and where cash generating units should be consistent with the entity’s own stated decarbonisation path.
- IAS 37 provisions, where public commitments can crystallise constructive obligations.
- IAS 16 and IFRIC 1, which bring decommissioning into carrying amounts.
- IAS 12, which raises questions over deferred tax recoverability in businesses in transition.
- IFRS 9 expected credit losses, where forward looking climate scenarios are now firmly part of measurement. For banks this is one of the most judgemental estimates in the whole audit.
The toolkit: ISA 540 (Revised) does most of the work, because almost every climate effect under IFRS arrives as an estimate with a wide range. ISA 315 (Revised) drives the risk assessment, ISA 570 covers going concern and ISA 720 covers consistency with the strategic report and the climate narrative. Under ISA 701, climate is increasingly a key audit matter for listed clients, which raises both its visibility and the scrutiny it attracts.
Under IFRS, the question is whether management’s thinking about climate survives professional scepticism and an independent point estimate, not whether they thought about it at all.
The second front: sustainability assurance
This is where Ireland and the UK diverge.
Ireland. The Corporate Sustainability Reporting Directive was transposed through S.I. No. 336 of 2024, which amended Part 28 of the Companies Act 2014. IAASA is the competent authority for both statutory audit and sustainability assurance, and the first wave captured a relatively small group of large Irish entities.
Then the EU moved the goalposts. The stop the clock directive, transposed in Ireland in 2025, postponed later waves. The Omnibus I Directive, in force since March 2026, narrowed scope to companies with more than 1,000 employees and more than €450 million of turnover, pushed first application for the next wave to financial years beginning on or after 1 January 2027, moved non-EU parents to 2028 and removed the planned move to reasonable assurance. Limited assurance it is for the foreseeable future, with a European limited assurance standard due by July 2027.
The net effect for Irish auditors: a smaller population in scope, a longer runway and continuing uncertainty until Ireland transposes Omnibus I.
UK. A different route. The Department for Business and Trade published the final UK SRS S1 and UK SRS S2 in February 2026, endorsing the ISSB standards with a short list of UK amendments. They are voluntary for now. The FCA’s consultation, CP26/5, closed in March 2026 and proposed making UK SRS mandatory for listed companies for periods beginning on or after 1 January 2027, with Scope 3 on a comply or explain basis and transitional reliefs. The FCA aims to publish final rules in autumn 2026. The government has also confirmed plans for a registration regime for sustainability assurance providers.
Above both sits ISSA 5000, the IAASB’s new sustainability assurance standard, effective for engagements on information for periods beginning on or after 15 December 2026. It is framework neutral, open to any profession and covers both limited and reasonable assurance. The matching IESBA ethics standards take effect on the same date.
Six actions before year end
Here is the short list worth running past your methodology team.
- Bring climate into the ISA 315 risk assessment at planning, not as an afterthought. Pick the two or three places in each engagement where climate is most likely to bite, usually impairment, provisions and going concern, and plan your challenge there.
- For FRS 102 clients, run a completeness check. Have decommissioning estimates been revisited against current regulation? Have any public commitments created constructive obligations? Does the Section 8 disclosure tell a reader anything useful?
- For IFRS clients, put the climate narrative next to the models. Lay the front half of the annual report beside the key assumptions in the impairment and ECL models and look for inconsistencies. They are the most valuable audit evidence you will find on this topic.
- Decide where you build climate expertise in house and where you rely on an auditor’s expert under ISA 620. Document your evaluation of that expert. Regulators ask for it.
- Treat sustainability assurance as different work, not an extension of the financial audit: different data, different controls, different materiality and different reporting. Scope it precisely and be candid in the report about the limits of the underlying information.
- Watch Ireland’s transposition of Omnibus I and the FCA’s final rules in the UK. Both will shape client conversations through 2026 and 2027.
The bottom line
Climate risk in audit is not one new topic. It is a lens that changes how we look at estimates, provisions, going concern and other information, plus a new assurance market with real demand and immature data. Under FRS 102 the risk is omission and the fix is completeness. Under IFRS the risk is credibility and the fix is testing the model. Across both, the response that will stand up to inspection is the same: early planning, documented challenge and the willingness to say in the file where the evidence is thin.
The firms that do well here stopped waiting for a climate standard and started threading climate through every stage of the engagement. The ones still waiting will keep receiving findings.
Based on FRS 102 following the 2024 periodic review (effective 1 January 2026), UK SRS S1 and S2 (published February 2026), the EU Omnibus I Directive (in force March 2026) and ISSA 5000 (effective for periods beginning on or after 15 December 2026). This is professional commentary, not legal or audit advice. Confirm the status of specific requirements before acting.