The European regulator, ESMA, has issued a statement highlighting the common areas that European national securities regulators will be focusing on when reviewing listed companies’ 2016 IFRS financial statements. Not surprisingly, disclosures of the impact of the new standards are one of its three key priorities.
In just over a year, the new financial instruments and revenue standards will become effective. ESMA expects issuers to provide relevant information about the impact of these new standards.
Although the topics included in the statement are those deemed to be most relevant at a European level, regulatory bodies outside Europe are also likely to pay particular attention to many of the same topics. These topics are not exhaustive, however, and national regulators may have additional areas of focus.
For 2016 IFRS financial statements, ESMA expects relevant disclosures on the possible impacts of the new standards – IFRS 9 Financial Instruments, IFRS 15 Revenue From Contracts with Customers and IFRS 16 Leases.
Back in July, ESMA outlined its expectations1 for disclosures on the implementation of IFRS 15 in both 2016 and 2017 financial statements. Its expectations for IFRS 9 are likely to be similar. With the effective dates of these new standards fast approaching, ESMA is also urging companies to push their implementation projects forward.
In addition to disclosures on the impact of the new standards, ESMA has identified the presentation of financial performance and the distinction between equity instruments and financial liabilities as key focus areas.
In particular, it is calling for companies to present performance transparently and consistently in their financial statements and other accompanying documents.
ESMA also reminds companies that its Guidelines on APMs and the requirements set out in the amendments to IAS 1 Presentation of Financial Statements will apply.
|Topics||Specific points to consider|
|Presentation of financial performance||
|Distinction between equity instruments and financial liabilities||
|Disclosures on the impact of new standards||
For those companies potentially affected by Brexit, ESMA is also encouraging disclosure of the associated risks, and the expected impacts and uncertainties on their business activities.
Listed companies and their auditors should continue to pay attention to the enforcement priorities published by ESMA in previous years, which remain relevant. They should also continue to follow ESMA’s key principles for improving the quality of disclosures, published in October 2015.
The 2015 and 2014 priorities covered areas such as the impact of financial market conditions on financial statements, statement of cash flows, fair value measurement, consolidated financial statements and joint arrangements, deferred tax assets and related disclosures.
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