Michael Kavanagh summarises the key points in ESMA’s recently published Enforcement and Regulatory Activities of European Accounting Enforcers in 2018.
It was another busy year in the world of financial reporting, evidenced by the 50+ pages in the European Securities and Markets Authority (ESMA) annual report on the enforcement and regulatory activities of accounting enforcers within the EU, issued recently.
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, the 2017 European Common Enforcement Priorities. Actions were taken against 33% of the total number of issuers examined (328 issuers).
This year, national enforcers expanded their supervisory activities to include front end non-financial information on environmental, social and governance matters. National enforcers assessed the non-financial information of 819 issuers, covering approximately 31% of the total estimated number of issuers subject to the new statutory requirements, resulting in 51 enforcement measures.
In addition, 746 front-end management reports were reviewed for evaluating compliance with ESMA’s Guidelines on Alternative Performance Measures, covering around 15% of all IFRS listed issuers in Europe against which were taken 136 corrective actions.
This year, the ESMA report presents information disaggregated per country in order to increase transparency in relation to supervisory activities across the EU. According to the Report there were 92 issuers within Irish Auditing and Accounting Supervisory Authority’s (IAASA) remit and 21 financial reports of such issuers were examined for compliance with IFRS. 18 issuers had actions taken against them and 9 of these were published as ‘corrective notes’.
At the time of writing, it is likely that this is the last year the UK will be included in an ESMA report, due to Brexit. Therefore, it is worth noting that there were 1,304 IFRS issuers within the supervisory remit of the UK Authorities which will most likely not be subject to ESMA overview post-Brexit. The combined figures for the next two largest markets, France and Germany, was 893, giving an indication of the scale of issuers now leaving ESMA’s supervisory scope. Of these 1,304 issuers, 105 were examined leading to 48 actions but no public corrective notes.
The report outlines that, in 2019, ESMA and EU enforcers will continue to focus on consistency in the application and enforcement of the new financial reporting standards which came into force in 2018 (IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments) and the disclosure of the expected impact of implementation of IFRS 16 Leases. ESMA will also continue to actively contribute to the development of high-quality accounting standards by providing input to consultations conducted by the IASB and EFRAG and will closely monitor and contribute to the EU endorsement process of the IFRS 17 Insurance Contracts.
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 Alternative Performance Measures (APMs).
Michael Kavanagh is Director, Department of Professional Practice in KPMG and a member of the Consultative Working Group of ESMA’s Corporate Reporting Standing Committee.
This article originally appeared in the April 2019 edition of Accountancy Ireland and is reproduced here with their kind permission.