ESMA has announced enforcement priorities for 2021 financial statements

On 29 October 2021, the European Securities and Markets Authority (ESMA) announced the priority issues that the assessment of listed companies' 2021 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 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 2021 IFRS financial statements reflect a special focus on COVID-19 and climate-related disclosures. The key areas are:

  • careful assessment and transparency in accounting for longer-term impacts of the COVID-19 pandemic and the recovery phase;
  • consistency between the information disclosed within the IFRS financial statements and the non-financial information concerning climate-related matters, consideration of climate risks, disclosure of any significant judgements and estimation of uncertainty regarding climate risks while clearly assessing materiality; and
  • enhanced transparency regarding the measurement of Expected Credit Loss (ECL), particularly in relation to management overlays, significant changes in credit risk, forward-looking information, changes in loss allowances, credit risk exposures and collateral, and the effect of climate-related risk on ECL measurement.

The common enforcement priorities related to non-financial statements for the 2021 year-end are:

  • impacts of COVID-19 on sustainability-related goals and non-financial key performance indicators, as well as information on any structural changes; and
  • climate-related policies and their outcomes.

Additionally, ESMA reminds issuers that, starting from the financial year 2020, annual financial reports shall be prepared in compliance with the European Single Electronic Format (ESEF). More information is available on the ESMA special website 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.

A public statement on the enforcement priorities for 2021 is available here.


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