What will our audit and risk committee ask us?

The same questions they ask about the financial report, applied to information the committee has never seen before. Expect them on capture and scope, where each number comes from and what controls sit over it, the significant judgements and materiality, who your assurance provider is and whether they are independent of the preparer, and what liability protection applies and until when. It works as a self-test: anything you cannot answer today is a work item.

What is the materiality threshold for climate disclosures?

There is no prescribed number. Under AASB S2, information is material if omitting or misstating it could reasonably be expected to influence users' decisions. Separately, your assurance practitioner sets a quantitative materiality for testing, and the two are related but different.

Glossary›AASB S2 disclosure requirements / AASB S2 mechanics›Acute vs chronic physical risk

Glossary term

Cluster C · C9

Tier 1 · differentiator

Acute vs chronic physical risk

Definition

Acute physical risk is event-driven: storms, floods, drought and heatwaves, increasing in severity and frequency. Chronic physical risk comes from longer-term shifts in climatic patterns, including changes in precipitation and temperature leading to sea level rise, reduced water availability, biodiversity loss and changes in soil productivity. AASB S2 defines both within climate-related physical risks.

AASB S2

· Appendix A, definition of “climate-related physical risks” ·

In force

On this page

In practice
What the assurer does with it
Commonly confused with
Sources
Related terms
Related questions

Cluster

C · AASB S2 disclosure requirements / AASB S2 mechanics, 25 terms

In practice

The split is a definition, not a separate disclosure requirement. AASB S2 does not ask an entity to present an acute table and a chronic table. What paragraph 10(b) requires is that for each identified risk the entity explains whether it considers the risk to be physical or transition. The acute and chronic distinction sits one level below that, inside the Appendix A definition, and it earns its place in a glossary because it is the fastest way to find the risks an entity has missed.

Almost every first-time physical risk assessment is an acute assessment. The entity maps its sites against flood, bushfire, cyclone and heat exposure, usually using a hazard overlay bought from a data provider, and calls that physical risk. That work is real, but it captures one half of the definition.

Chronic risk is the half that is missed, and for many Australian mid-market businesses it is the half with the larger financial effect, because it is slower, more certain and less insurable:

Acute

Chronic

Driver

A discrete event

A sustained shift in the baseline

Typical horizon

Immediate; recurs

Medium to long term; compounds

How it usually hits the accounts

Repair cost, business interruption, inventory loss, a single-year spike in insurance excess

Rising input costs, declining yields or output, water entitlement cost, cooling load, asset useful life, insurance availability and premium trend, workforce productivity in heat

Where it is usually found

A hazard overlay against site addresses

Long-run climate variables against the actual production or cost driver

Common failure

Treated as fully insured, so disclosed as immaterial

Not looked for at all

Two Australian specifics are worth naming. Insurance is a chronic risk channel dressed as an acute one: the exposure is not only the loss from the next flood but the trend in premium, excess, sub-limits and ultimately availability at a given location, which moves every year regardless of whether an event occurs. And water is a chronic risk for far more businesses than agriculture, reaching food processing, beverages, manufacturing, data centres and anything with significant cooling.

The other thing to get right is that physical risk does not stop at the fence. Paragraph 13(b) asks where in the business model and value chain risks and opportunities are concentrated. A business with no exposed sites can have serious physical exposure through a single supplier, a single port, or one road.

What the assurer does with it

Physical risk sits within the strategy disclosures reviewed from year one under ASSA 5010 paragraph 10(a)(ii), so the assessment is tested in the first report even though the output is a judgement.

The assurer tests the boundary and the method, not the conclusion. They ask which locations were assessed and how that population was derived, because the population is testable and the risk rating is not: the site list should reconcile to the fixed asset register, the lease schedule and the insurance schedule, and a site missing from the list is a completeness failure the entity cannot argue away. They then ask what hazard data was used, from which source, at what resolution, and over which horizons, and whether the assessment covered chronic variables or only acute hazards.

They accept an assessment with a documented site population reconciled to a finance-system record, a named and dated data source, defined time horizons consistent with those disclosed under paragraph 10(d), and evidence the results were considered by management or the board. They reject a site list that does not agree to the asset or lease register, a hazard screen with no stated source or vintage, an assessment covering owned sites only where the value chain concentration under paragraph 13(b) is obviously elsewhere, and a disclosure asserting chronic risk was considered with no work behind it. The reliable follow-up question is what the entity did with a site the screen flagged, because an assessment that identifies exposure and changes nothing tends to mean it was never presented to anyone who could act.

Commonly confused with

Transition risk, which arises from the effort to move to a lower-carbon economy: policy, legal, technological, market and reputational. The test is the source of the risk, not its timing. A carbon price is transition risk even though it is slow; a heatwave is acute physical risk even though it is brief. Also confused with the acute and chronic language used in insurance and emergency management, where the terms describe response timeframes rather than risk sources.