IFRS Supervisory Convergence

The European Securities and Markets Authority (ESMA), the EU’s securities markets’ regulator, has published an extract from its confidential database of enforcement decisions on financial statements.

The extract includes a selection of 8 decisions taken by national enforcers in the period from December 2016 to December 2018. These decisions cover several topics, including presentation of the statement of cash flows, impairment of financial and non-financial assets as well as accounting treatment of leased-out property acquired for re-development.

ESMA is publishing these extracts, with the aim of providing issuers and users of financial statements with relevant information on the appropriate application of the International Financial Reporting Standards (IFRS).

European enforcers monitor and review IFRS financial statements and consider whether they comply with IFRS and other applicable reporting requirements, including relevant national law.

The publication of enforcement decisions informs market participants about which accounting treatments European national enforcers may consider as complying with IFRS, that is, whether the treatments are considered as being within the accepted range permitted by IFRS. These publications, together with the rationale behind them, will contribute to a consistent application of IFRS in the European Economic Area.

ESMA will regularly publish extracts from the database, with the next extract expected in early 2020

The European Securities and Markets Authority (ESMA) today publishes its Annual Report on the enforcement and regulatory activities of accounting enforcers within the European Union (EU).

In 2018 ESMA’s efforts to deepen convergence in the enforcement of financial information particularly focused on the harmonisation of the application and enforcement of new IFRS standards IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments, as announced in the 2017 ESMA common enforcement priorities. 

During 2018 European enforcers expanded for the first time their supervisory activities to non-financial information on environmental, social and governance (ESG) matters, published by issuers in accordance with new requirements which came into force at European level. 

Steven Maijoor, Chair of ESMA, said:

“The disclosure of ESG information by issuers, along with high-quality financial reporting, is an important step in providing investors with a comprehensive understanding of a company’s performance and impact of its activities. To effectively support investment decision-making in the context of sustainable finance, it is essential that issuers scale up their efforts to provide high quality non-financial disclosures”

In the course of 2018, national enforcers reviewed the financial statements of about 950 issuers (approximately 16% of issuers of securities listed on EU regulated markets), assessing compliance with IFRS and in particular with the 2017 European Common Enforcement Priorities (ECEP). Actions were taken against 328 issuers (33% of the total number of issuers examined). This year, the ESMA report presents this information disaggregated per country in order to increase transparency in relation to supervisory activities across the Union.

Enforcers also assessed the non-financial information related to ESG for 819 issuers, covering approximately 31% of the total estimated number of issuers subject to the new requirements, resulting in 51 enforcement measures.

In addition, 746 management reports were reviewed for evaluating compliance with ESMA’s Guidelines on Alternative Performance Measures, covering around 15% of all IFRS listed issuers in Europe against which were taken 136 corrective actions.

Next steps

In 2019, ESMA and European enforcers will continue to focus on consistency in the application and enforcement of the new standards which came into force in 2018 (IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments) and on the disclosure of the expected impact of implementation of IFRS 16 Leases. ESMA will also continue to actively contribute to the development of high-quality accounting standards by providing input to consultations conducted by the IASB and EFRAG and will closely monitor and contribute to the endorsement process of the IFRS 17 – Insurance Contracts.

When it comes to non-financial information, enforcers will focus on strengthening the harmonisation and enforcement of the disclosures of non-financial information, notably those related to environmental and climate change-related matters, as well as on the application of the ESMA Guidelines on Alternative Performance Measures (APMs).

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