On 27 March 2019, the European Securities and Markets Authority (ESMA) published a report on the enforcement and regulatory activities of accounting enforcers within the European Union in 2018. ESMA is an independent EU authority that was established on 1 January 2011. ESMA’s mission is to enhance the protection of investors and promote stable and well-functioning financial markets in the European Union (EU).
ESMA and the accounting enforcers in the EU regularly examine compliance of financial information provided by listed issuers on regulated markets with the applicable financial reporting framework (IFRS).
In 2018, European enforcers examined the financial statements of about 950 issuers representing an average examination rate of 16% of all IFRS issuers with securities listed on regulated markets (2017: 19%). These examinations resulted in 296 actions taken to address material departures from IFRS (2017: 328). As in 2016 and 2017, the main deficiencies were identified in the areas of financial statements presentation, impairment of non-financial assets, and accounting for financial instruments.
In 2018, ESMA and European enforcers evaluated the level of compliance with IFRS in the areas identified as common enforcement priorities for 2017 annual IFRS financial statements on a sample of 260 IFRS financial statements examined by European enforcers. This assessment related to:
- Disclosure of the expected impact of implementation of major new standards in the period of their initial application (IFRS 9, IFRS 15 and IFRS 16);
- Specific recognition, measurement and disclosure issues of IFRS 3; and
- Specific issues relating to IAS 7 such as reconciliation of liabilities arising from financing activities.
In 2018 European enforcers also examined 819 issuers for the purpose of assessing the nonfinancial disclosures prepared in accordance with Articles 19a and 29a of the Accounting Directive, thus covering approximately 31% of the total estimated number of issuers subject to the requirement to publish the non-financial statement.
Furthermore, ESMA, together with European enforcers, identified a set of common enforcement priorities highlighting topics significant for European issuers when preparing their 2018 IFRS financial statements. ESMA included:
- Specific issues related to the application of IFRS 15 Revenue from Contracts with Customers;
- Specific issues related to the application of IFRS 9 Financial Instruments; and
- Disclosure of the expected impact of implementation of IFRS 16 Leases.
ESMA identified the following areas of particular focus for the 2018 non-financial statements:
- The disclosures relating to environmental and climate change-related matters; and
- The requirements to disclose a reasoned explanation in case an issuer has not pursued a policy relating to a certain non-financial matter and the importance of disclosing complete information regarding nonfinancial key-performance indicators.
ESMA and European enforcers furthermore urged issuers to continue to provide high quality, entity-specific disclosures, including, amongst other things, with regard to the impact of the decision of the United Kingdom to leave the European Union (Brexit) and to the consequences of Argentina being classified as a hyperinflationary economy.
The ESMA Report on Enforcement and Regulatory Activities of Accounting Enforcers in 2018 is available on the ESMA website.
The article is part of dReport – March 2019, Accounting news.