ESMA has announced Enforcement Priorities for 2019 Financial Statements

On 27 October 2019, the European Securities and Markets Authority (ESMA) announced the priority issues that the assessment of listed companies' 2019 financial statements will focus on.

ESMA is an independent EU Authority that was established in 2011. ESMA’s mission is to enhance the protection of investors and promote stable and well-functioning financial markets in the European Union.

The European national enforcers of financial information monitor and review financial statements published by issuers with securities traded on a regulated European market and who prepare their financial statements in accordance with International Financial Reporting Standards (IFRS) and consider whether they comply with IFRS and other applicable reporting requirements, including relevant national law.

The common enforcement priorities related to 2019 IFRS financial statements include:

  • specific issues related to the application of IFRS 16 Leases;
  • follow-up of specific issues related to the application of IFRS 9 Financial Instruments for credit institutions and IFRS 15 Revenue from Contracts with Customers for corporate issuers; and
  • specific issues related to the application of IAS 12 Income Taxes (including the application of IFRIC 23 Uncertainty over Income Tax Treatments).

ESMA selected these topics based on the significant changes that these new requirements introduced and their importance for European capital markets.

ESMA also highlights potentially significant implications of transition from one interest rate benchmark rate to another on financial reporting and the importance of timely disclosure of its consequences.

In addition, this year’s priorities highlight the requirements to disclose non-financial information, with a focus on environmental matters. ESMA also highlights the importance of disclosures analysing the possible impacts of Brexit.

Additionally, the harmonised electronic format for issuers’ annual financial reporting (the European Single Electronic Format, ESEF) will apply to annual financial reports containing financial statements for financial years beginning on or after 1 January 2020. ESMA expects issuers to undertake all the necessary steps to ensure compliance with the new requirements on a timely basis. To support implementation, ESMA has published information on its website designed to help issuers understand the requirements.

ESMA and European national enforcers will monitor and supervise the application of the IFRS requirements outlined in the priorities, with national authorities incorporating them into their reviews and taking corrective actions where appropriate. ESMA will collect data on how European listed entities have applied the priorities and will publish its findings in a separate report.

Public statement on enforcement priorities for 2019 is available here.

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