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European accounting enforcers outline common enforcement priorities regarding companies’ 2019 financial statements

22/10/2019

The European Securities and Markets Authority (‘ESMA’) has published its annual priorities statement titled European common enforcement priorities for 2019 annual financial reports’ setting out those topics which company directors, Audit Committees and auditors should particularly consider when preparing, reviewing and auditing International Financial Reporting Standards (‘IFRS’) financial statements for the year ending 31 December 2019.

ESMA and national accounting enforcers, including IAASA, will pay attention to these topics when examining issuers’ financial reports in 2019.

The three priorities for 2019, selected on the basis of the significant changes that these new requirements introduce and their impact on EU capital markets, are:

  • specific issues related to the application of IFRS 16 Leases;

  • follow-up of specific issues related to the application of IFRS 9 Financial Instruments for credit institutions and   IFRS 15 Revenue from Contracts with Customers for corporate issuers; and

  • specific issues related to application of IAS 12 Income Taxes (including application of IFRIC 23 Uncertainty over Income Tax Treatments).

In its statement, ESMA reiterates the importance for companies to present entity-specific information in their financial reports and provide information that aids readers’ understanding of the company’s financial performance and financial position.

ESMA highlights potentially significant implications of transition from one interest rate benchmark rate to another on financial reporting and the importance of timely disclosure of its consequences.

ESMA’s statement also draws attention to some specific requirements relating to the sections of the annual financial report other than the financial statements, namely:

  • the disclosures of non-financial information focusing on:
    • environmental and climate change related matters;

    • key-performance indicators;

    • the use of disclosure frameworks and supply chains; and

  • specific aspects related to the application of the ESMA Guidelines on Alternative Performance Measures (APMs) to measures modified or included as a result of the new accounting standards.

The EU Commission Delegated Regulation specifying the harmonised electronic format for issuers’ annual financial reporting (the European Single Electronic Format) was published on 29 May 2019 and will apply to annual financial reports containing financial statements for financial years beginning on or after 1 January 2020. ESMA expects issuers to undertake all the necessary steps to ensure compliance with the new requirements on a timely basis.

Finally, ESMA again highlights, as in past years, the importance of closely monitoring Brexit negotiations and of providing disclosures on the impact the decision of the UK to leave the EU will have on companies’ activities and their financial information.

 

 

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