United Kingdom (and EU regulation)

ESMA announces enforcement priorities for 2019 financial statements

On 22 October 2019, the European Securities and Markets Authority (ESMA) published a statement outlining its priorities for European enforcers to consider when examining the 2019 financial reports of listed companies.

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

specific issues related to 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 application of IAS 12 Income Taxes.

In addition, ESMA also highlights the potential implications of the transition from one interest rate benchmark to another on financial reporting and the importance of timely disclosure of its consequences. ESMA encourages issuers to prepare for the timely implementation of recent IFRS 9 amendments which address hedge accounting implications, and monitor developments in the EU endorsement process which is expected to be finalised in time for the 2019 accounts.

As regards the disclosure of non-financial information, ESMA will be placing a spotlight on environmental matters, key-performance indicators, the use of disclosure frameworks and supply chains and specific aspects of ESMA’s Guidelines on Alternative Performance Measures. ESMA also highlights the importance of closely monitoring Brexit negotiations and of providing disclosures on the impact Brexit will have on issuers’ activities and financial information.

Furthermore, ESMA notes that the harmonised electronic format for issuers’ annual financial reporting (the European Single Electronic Format) 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.

In terms of next steps, ESMA, together with national enforcers, will monitor and supervise the application of the IRS requirements as well as the other relevant provisions outlined in the statement. ESMA will collect data on how listed firms have applied the priorities and expects to report on its findings in its report on its 2020 enforcement activities.