Financial Reporting

Enforcement of IFRS Reporting

The financial information of listed issuers is subject to enforcement by national enforcers (national competent authorities) in the European Economic Area (EEA). Enforcement encompasses examining compliance with the applicable financial reporting framework and taking appropriate measures when infringements are identified.

The Guidelines on the enforcement of financial information (GLEFI), issued in 2014 and revised in 2022, are applied by enforcers to ensure that issuers’ financial information complies with the requirements of the Transparency Directive. These Guidelines define the objectives of enforcement, outline the procedures to be followed and set expectations for enforcers when examining financial information. Specifically, they detail principles concerning selection methods, examination procedures and enforcement actions. The Guidelines also establish a framework for coordinating and discussing enforcement cases across Europe. ESMA's primary focus is on financial information prepared in accordance with IFRS as endorsed by the EU. The Guidelines compliance table shows enforcers’ adherence to these Guidelines. ESMA periodically conducts peer reviews to assess national enforcers’ compliance with the Guidelines.

Supervisory convergence

ESMA’s activities on supervisory convergence of enforcement are mainly carried out through the Financial Reporting Working Group (FRWG (EECS)), a forum of approximately 40 enforcers of financial information from the various EEA countries. The FRWG (EECS) coordinates the supervision of approximately 3,900 listed issuers preparing IFRS financial statements, making it the largest regional network of enforcers with IFRS supervisory responsibilities. Through the FRWG (EECS), enforcers discuss and share their experiences with the application and enforcement of IFRS.

European Common Enforcement Priorities 

Establishing European Common Enforcement Priorities (ECEP) is one of the important ways of fostering supervisory convergence across the EEA. ESMA has been publishing annual ECEP since 2012; these priorities are essential to prevent misstatements and to enhance the quality and consistency of corporate reporting across the EEA.

Annual Report on corporate reporting enforcement and regulatory activities

Each year, ESMA publishes an annual report detailing the activities related to the supervision and enforcement of corporate reporting carried out for the past calendar year by the national enforcers in the EEA, and by ESMA. Importantly, the annual report also provides key messages arising from examinations of how issuers have complied with the requirements and recommendations set out in the previous year’s ECEP statement.

Extracts from the database of enforcement decisions on financial statements

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.

Peer reviews

To further strengthen consistency in supervisory outcomes, ESMA periodically organises and conducts peer reviews on the activities and procedures of national enforcers in relation to compliance with the requirements of the GLEFI and the transparency Directive. ESMA publishes reports outlining the findings of such peer reviews and their respective follow-ups.

Thematic studies and statements

ESMA regularly publishes thematic studies and statements on the application of IFRS, particularly in relation to the entry in force of new standards or emerging areas where ESMA believes it is important to communicate key messages to issuers.

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). In this role, ESMA addresses the enforceability of standards and shares the experience of enforcers on the application of IFRS accounting standards 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 Standards Board (IASB) and to EFRAG covering IASB’s 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. 

ESMA regularly submits issues to the IFRS Interpretations Committee (IFRS IC) where diversity in practice was identified, requesting additional guidance where a lack of clarity in IFRS might contribute to a divergent application.

Finally, ESMA is a member of the IFRS Foundation’s Advisory Council, which provides strategic support and advice to the IFRS Foundation, the IASB and the International Sustainability Standards Board (ISSB).