Global Regulation Tomorrow

On the 28 October 2022, the European Securities and Markets Authority (ESMA) issued its public statement setting out the European common enforcement priorities (ECEP) for the 2022 annual financial reports of issuers admitted to trading on EEA regulated markets.

The recommendations in the statement will be considered by national enforcers when they monitor and assess the 2022 annual financial reports of listed companies.

Priorities related to IFRS financial statements

The 2022 enforcement priorities for financial statements prepared in accordance with IFRS cover:

• a call for consistency between the information disclosed within the IFRS financial statements and the non-financial information concerning climate-related matters, impact of climate risks in impairment of non-financial assets, recognising and measuring provisions and disclosure of the accounting treatment followed when entering into power purchase agreements;
• enhanced transparency of the impacts of Russia’s invasion of Ukraine on issuers’ financial statements; and
• reflection of the current macroeconomic environment in the measurement of employee benefits, impairment of non-financial assets, recognition of revenue and expected credit losses for financial instruments.

Priorities related to non-financial statements

The recommendations concerning non-financial information refer to:

• climate-related matters, including transition plans and the importance of enhancing transparency on the goals within such plans, with a call for caution and specificity on carbon neutrality commitments, sufficient explanations of uncertainties surrounding climate-related targets and clarity on the issuer’s reporting on greenhouse gas emissions;
• a call for enhanced disclosures on taxonomy eligibility and alignment by non-financial undertakings and the need for financial undertakings to prepare for taxonomy alignment reporting in 2024; and
• transparency on the scope of the issuer’s non-financial reporting (possible coverage of value chains) and robustness of the data used for the non-financial reporting.

Additionally, regarding alternative performance measures (APMs), the statement highlights that issuers are expected to comply with the APM Guidelines and ESMA Q7As on APMs in relation to all APMs used. Finally, regarding the European Single Electronic Format (ESEF), the statement underlines that, starting from the financial year 2022 and pursuant to the regulatory technical standard on ESEF, issuers should block tag the notes to the financial statements.

Next steps

ESMA and national enforcers will monitor and supervise the application of the recommendations outlined in the statement, with national enforcers incorporating them into their examinations and taking corrective actions where appropriate. ESMA will then collect data and communicate findings in its report due in spring 2024.