Financial Reporting
ESMA’s activities in the area of financial reporting stem from the Transparency Directive. ESMA monitors the application, by issuers whose securities are admitted to trading on regulated markets (listed issuers), of International Financial Reporting Standards (IFRS) in accordance with the IAS Regulation as well as the use of Alternative Performance Measures (APMs). In addition, ESMA fosters convergence of supervision and enforcement of IFRS across Europe. ESMA also contributes to IFRS standard setting activities.
Enforcement of financial reporting
Enforcement of IFRS Reporting
The financial information of listed issuers is subject to supervision and enforcement by national enforcers in the European Economic Area (EEA). Enforcement encompasses examining compliance of financial information with the applicable financial reporting framework as well as taking appropriate measures when infringements are identified.
ESMA Guidelines on the enforcement of financial information, issued in 2014 and revised in 2022, are applied by enforcers to ensure that financial information provided by issuers comply with the requirements resulting from the Transparency Directive. The Guidelines define the objectives of enforcement, the procedures to be followed and set the expectations for enforcers when examining financial information. In particular, they set out the principles with regards to selection methods, examination procedures and enforcement actions. The guidelines also set out the framework for coordination and discussion of enforcement cases in Europe. The main focus for ESMA is on financial information drawn up in accordance with IFRS as endorsed by the EU. The Guidelines compliance table presents enforcers’ compliance with these Guidelines. ESMA periodically conducts peer reviews to assess compliance with the Guidelines by national enforcers.
ESMA’s activities on supervisory convergence of enforcement are carried out mainly through the Financial Reporting Reporting Working (FRWG (EECS)), a forum of approximately 40 enforcers from the various EEA countries who act in the area of supervision and enforcement of financial information. The FRWG (EECS) is responsible for coordinating the supervision of approximately 4,200 listed issuers preparing IFRS financial statements and as such currently constitutes the largest regional enforcers’ network with supervision responsibilities for IFRS. Through the FRWG (EECS), enforcers discuss and share their experiences with the application and enforcement of IFRS.
Since 2007, ESMA regularly publishes extracts from its confidential database of enforcement decisions on financial statements, with the aim of providing issuers and users of financial statements with relevant information on the appropriate application of the IFRS.
Extracts from the database of enforcement decisions on financial statements
| Date of publication | Extract |
|---|---|
| 27 May 2024 | 29th extract (ESMA32-193237008-8267) |
| 9 October 2023 | 28th extract (ESMA32-193237008-3341) |
| 29 March 2023 | 27th extract (ESMA32-63-1465) |
| 17 May 2022 | 26th extract (ESMA32-63-1224) |
| 15 July 2021 | 25th extract (ESMA32-63-1192) |
| 2 April 2020 | 24th extract (ESMA32-63-845) |
| 16 July 2019 | 23rd extract (ESMA32-63-717) |
| 4 July 2018 | 22nd extract (ESMA 32-63-427) |
| Older Extracts | |
Statements
In order to promote the consistent application of European securities and markets legislation and IFRS, ESMA regularly issues statements and opinions. Moreover, ESMA regularly performs reviews of accounting practices in response to specific market developments, changes in accounting principles or as a follow-up to previous studies.
Reports
- From “black box” to “open book”? Evidence from the first application of IFRS 17 Insurance Contracts
- Report on Disclosures of Climate Related Matters in the Financial Statements
- Report on the application of the IFRS 7 and IFRS 9 requirements regarding banks’ expected credit losses
- Report on the application of IFRS 10-11-12
- Review of Fair Value Measurement in the IFRS financial statements
- Review on the application of accounting requirements for business combinations in IFRS financial statements
- Final report on the Review of European enforcers on the implementation of IFRS 8
- Report on the Review of practices related to goodwill impairment in IFRS Financial Statements
Annual European Common Enforcement Priorities
In order to ensure European supervisory convergence, when applying the relevant criteria for selection and examination of financial information, enforcers take into account the European Common Enforcement Priorities (ECEP) identified by enforcers together with ESMA. ESMA publishes ECEP on an annual basis since 2012 and has found that communicating certain priorities to stakeholders in this way before annual financial statements are prepared contributes to preventing misstatements and to enhancing the quality and consistency of corporate reporting across the EEA.
Report on corporate reporting enforcement and regulatory activities
ESMA publishes on an annual basis a report on corporate reporting enforcement and regulatory activities. This report provides an overview of the activities of ESMA and of national enforcers when examining compliance of financial and non-financial information provided by issuers. It also presents the main activities contributing to supervisory convergence performed at European level and quantitative information on enforcement activities in the EEA.
Enforcement of Alternative Performance Measures (APM) Reporting
ESMA’s Guidelines on APM published in 2015 set out principles for the presentation and disclosure of performance measures outside financial statements, such as labels, reconciliations and definitions, to ensure that issuers comply with the “true and fair review” principle when publishing APMs. The Guidelines compliance table presents enforcers’ compliance with these Guidelines.
The Guidelines are aimed at promoting the usefulness and transparency of APMs included in prospectuses or regulated information such as management reports or ad-hoc disclosures published in accordance with Article 17 of Market Abuse Regulation (MAR). Adherence to the Guidelines improves the comparability, reliability and / or comprehensibility of APMs. Issuers or persons responsible for the prospectus who comply with these Guidelines provide a faithful representation of the financial information disclosed to the market.
ESMA has published several questions and answers on the Guidelines on APMs to promote common supervisory approaches and practices in their implementation. Moreover, a Report on the use of APMs and on the compliance with ESMA’s Guidelines on APMs was published in 2019.
Contribution to IFRS standard-setting
ESMA is actively involved in the work of the European Financial Reporting Advisory Group (EFRAG) by participating as an official observer in the activities of EFRAG’s Financial Reporting Board and in its Financial Reporting Technical Expert Group (TEG), where ESMA addresses the enforceability of standards and shares the experience of enforcers on the application of IFRS in Europe.
Furthermore, ESMA contributes actively to the European endorsement process by participating as an official observer in the Accounting Regulatory Committee
ESMA contributes to the standard-setting process by submitting comment letters to the International Accounting Standard Setter’s Board (IASB) and to EFRAG covering IASB major Exposure Drafts open for comments and conveying the views of European enforcers on proposed new standards and interpretations. ESMA also provides comment letters on EFRAG Draft Endorsement Advice. In its work, ESMA particularly focuses on improving the usefulness and transparency of the decisions regarding financial information and the enforceability of IFRS.
ESMA regularly submits to the IFRS Interpretations Committee (IFRS IC) issues where diversity in practice was identified, requesting additional guidance where a lack of clarity in IFRS might contribute to their divergent application.
Finally, ESMA is a member of the IFRS Foundation’s Advisory Council whose role is to provide strategic support and advice to the IFRS Foundation, the IASB and the International Sustainability Standards Board (ISSB).