29/03/19

EUROPE: ESMA calls for wider EU scrutiny of non-financial reporting.

As published on accountancydaily.co, Thursday 28^th March, 2019.

The European Securities and Markets Authority (ESMA) has published its annual report on the enforcement and regulatory activities of accounting enforcers within the EU, and has indicated next year’s focus will continue to be on non-financial reporting as well as the implementation of new IFRS standards

The regulator said that in 2018 it focused on harmonisation of the application and enforcement of new International Financial Reporting Standards (IFRS) including the new revenue recognition standard, IFRS 15 Revenue from Contracts with Customers, and IFRS 9 Financial Instruments.

Over the year, European enforcers also 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 EU.

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 (APMs), covering around 15% of all IFRS lifted issuers in Europe against which were taken 136 corrective actions.

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 say it will also closely monitor and contribute to the endorsement process of for IFRS 17 Insurance Contracts, due to come into effect from 1 January 2022.

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 APMs.