The European Securities and Markets Authority (ESMA) has informed European enforcers what they should prioritise when examining 2019 annual financial reports from listed companies.
The new enforcement priorities are a reflection of changes introduced by recent reporting standards and issues identified by national competent authorities during their own enforcement activities.
One of the priorities will be the specific issues related to IFRS 16 Leases given the need to exercise significant judgement in its application, notably in determining the lease term and discount rate.
Another focus for the regulator will be on the improvement of the information provided under standards which were made applicable in 2018 IFRS financial statements.
Its final priority will be put on the application of IAS 12 Income in regard to deferred tax assets arising from unused tax losses.
ESMA has also indicated potential implications of the transition from one interest rate benchmark rate to another one on financial reporting and the importance of quick disclosure of consequences. Issuers have been encouraged to prepare for recent IFRS 9 amendments which alter hedge accounting implications.
ESMA Chair Steven Maijoor said, “The provision of good quality financial information by listed issuers in their financial statements is a key element in building investors’ confidence in European capital markets and the priorities regarding financial information reflect key changes in the IFRS standards in 2019 which impact on issuers and financial markets.
“We continue to stress the importance of providing investors with material, complete, balanced and accessible information on non-financial matters, including environmental matters and climate change. Issuers should also improve the transparency and quality of reported information in various areas, most notably on the key non-financial performance indicators used and on the non-financial disclosure frameworks adopted.
“The consistent application of reporting standards across the EU is essential to enhancing investor protection and promoting stable and orderly markets.”
The regulator also commented on key non-financial information issues and alternative performance measures (APMs). It stated that principles of materiality and completeness of disclosures should guide the reporting of non-financial information.
This should include information around environmental and climate change-related matters, key performance indicators, disclosure frameworks, and supply chains.
Moving forward, ESMA will monitor and supervise the application of IFRS requirements and collect data on how national authorities have incorporated the priorities.
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