How is consistent enforcement of IFRS across the European Union achieved?

The European Communities (International Financial Reporting Standards and Miscellaneous Amendments) Regulations 2005 (S.I. 116/2005) gives effect to Directive 2003/51/EC of the European Parliament and of the Council of 18 June 2003 (‘the IAS Regulation’).

The IAS Regulation:

1. requires that certain EU entities (i.e. those admitted to trading on a regulated market and having a requirement to prepare consolidated financial statements) prepare their consolidated financial statements in accordance with IFRS as adopted for use in the EU (i.e. IFRS as endorsed by the EU ); and

2. makes reference to Member States’ requirement to take appropriate measures to ensure compliance with IFRS.

To facilitate these requirements, ESMA established the EECS. EECS comprises:

1. Member States’ securities regulators; and

2. where Member States’ securities regulators are not charged with primary responsibility for the enforcement of financial reporting standards, the relevant enforcement body.

In counties such as Ireland, the UK, Germany, Iceland and Denmark, it is the relevant enforcement body, i.e. IAASA in the Irish context, which is the member of EECS. In most other jurisdictions, it is the securities regulator who is the EECS member.

The role of EECS is to facilitate co-operation and co-ordination between European national accounting enforcers with a view to bringing about the consistent enforcement of IFRS across the EU. EECS on-going regular activities include:

1. discussing accounting enforcement decisions taken by EU national accounting enforcers;

2. discussing emerging issues currently under examination by EU national accounting enforcers;

3. contributing to the confidential database of enforcement decisions;

4. publishing, for the benefit of issuers and other interested parties, summaries of enforcement decisions posted to the EECS database;

5. publishing (via ESMA) annual activity reports on the enforcement of IFRS in Europe, the purpose of which is to provide stakeholders with an overview of the monitoring and enforcement of IFRS across the EU;

6. sharing and comparing practical experiences in the field of accounting enforcement such as selection, risk assessment, examination methodology, contacts with issuers and auditors, etc; and

7. holding meetings with representatives of the IFRS Interpretations Committee (IFRS IC) in order to discuss complex issues identified by EECS members either for which there is no specific IFRS guidance or where widely diverging interpretations exist.

EECS meetings aid discussion by European national accounting enforcers to:

1. share the reasoning underpinning their enforcement decisions with their counterparts; and

2. canvass their counterparts’ views on enforcement cases currently being dealt with, to achieve a consistent approach to enforcement across all EU Member States.

To achieve this objective, EECS (via ESMA) has established a database of enforcement decisions taken by national accounting enforcers. The content of this database is confidential and available to EU national accounting enforcers and ESMA only.

While the decisions taken by European national accounting enforcers do not constitute precedent and are not, therefore, binding on other enforcement authorities, the purpose of the database is to enable European national accounting enforcers to consider decisions taken by their counterparts on similar issues and to determine the extent, if any, to which they may be relevant to their own decision making (while recognising that the circumstances surrounding individual cases are rarely the same).

EECS, in conjunction with ESMA, publishes enforcement decisions taken by EECS members. Such public information does not disclose the specific issuers or individual jurisdictions by name but, rather, is published on an anonymous basis for the purpose of informing interested parties including issuers, auditors, shareholders, analysts and regulators.

ESMA Standards and Guidelines

ESMA publishes mandatory Guidelines with which EU national competent authorities are required to comply. IAASA is committed to applying ESMA standards and guidelines.

In particular, IAASA is committed to applying:

1. ESMA Guidelines on enforcement of financial information (ref. 4 February 2020 | ESMA32-50-218)

These Guidelines, which apply to all EU competent authorities, including IAASA, undertaking enforcement of financial information under the EU Transparency Directive, apply in relation to the enforcement of financial information under the EU Transparency Directive to ensure that financial information in harmonised documents provided by issuers whose securities are admitted to trading on a regulated market comply with the requirements resulting from the EU Transparency Directive.

Competent authorities to which these Guidelines apply, which includes IAASA, comply by incorporating them into their supervisory practices. Responsibility for compliance with the provisions of the EU Transparency Directive remains with the designated competent authority. Competent authorities remain under the obligation to make every effort to comply with these guidelines.

2. ESMA Guidelines on Alternative Performance Measures (APMs) (ref. ESMA/2015/1415en))

These Guidelines, which apply to APMs disclosed by issuers or persons responsible for the prospectus when publishing regulated information or prospectuses on or after 3 July 2016, apply in relation to APMs disclosed by issuers or persons responsible for the prospectus when publishing regulated information and prospectuses (and supplements). Examples of regulated information are management reports disclosed to the market in accordance with the EU Transparency Directive.

The Guidelines do not apply to APMs:

1. disclosed in financial statements;

2. disclosed in accordance with applicable legislation which sets out specific requirements governing the determination of such measures. Therefore, the guidelines do not apply to measures included in prospectuses such as pro forma financial information, related party transactions, profit forecasts, profit estimates, working capital statements and capitalisation and indebtedness for which the specific requirements of the prospectus regime apply.