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ESMA publishes updated accounting enforcement guidelines

The European Securities and Markets Authority (ESMA) has published updated Guidelines on the Enforcement of Financial Information.

These revised Guidelines, which are a revision to Guidelines published in July 2014, apply to accounting enforcers when undertaking examinations of financial information under the Transparency Directive.  

The revised Guidelines set out the principles EU accounting enforcers, including IAASA, shall apply throughout the enforcement process by:

  1. defining the objectives of enforcement; and
  1. setting out  some common characteristics of the enforcement process.

Revisions have been made to Guidelines 5 (Selection Methods) and to Guidelines 6, 6a and 6b (Examination Procedures).

ESMA has amended Guideline 5 to require that all selection approaches (risk based, random selection and rotation) form part of an accounting enforcers’ selection method. Guideline 6 has been amended to include a minimum proportion of examinations which should generally be interactive unlimited examinations. This change has the purpose of creating EU wide convergence regarding the proportion of examinations in which enforcers ask issuers questions and in which enforcers evaluate the entire financial information. It also aims to ensure that enforcers challenge measurement and recognition issues as these areas usually require interaction with issuers. Guideline 6a provides guidance on what is expected from enforcers when they examine management reports. Guideline 6b has been introduced to ensure that accounting enforcers have adequate quality review processes in place.

An IAASA representative was a member of the ESMA Task Force established to carry out a review of the Guidelines culminating in these revisions.

Unless accounting enforcers decide to implement the changes earlier, the revised Guidelines become effective on 1 January 2022.

A copy of the associated ESMA press release can be accessed here.