ESMA Sets Enforcement Priorities for Financial Statements

The European Securities and Markets Authority (ESMA) has published its public statement on European common enforcement priorities for 2014. These priorities identify topics which ESMA, together with European national enforcers, see as a key focus of their examinations of listed companies’ financial statements.

The common enforcement priorities encompass the following topics:

1.  Preparation and presentation of consolidated financial statements and related disclosures.
2.  Financial reporting by entities which have joint arrangements and related disclosures.
3.  Recognition and measurement of deferred tax assets.

ESMA added that these topics are important, as they either introduce significant changes to accounting practices following the implementation of new standards, or because the current economic environment poses particular challenges to issuers in the application of certain international financial reporting standards (IFRS) requirements, notably when forecasting future taxable profits in periods of low economic growth.

“The aim of the common enforcement priorities is to achieve a high level of harmonisation in enforcement and to contribute to consistency in the application of IFRS across the EU,” said Steven Maijoor, ESMA chair.

“In view of the impact of new standards on financial information, ESMA believes that listed companies and their auditors should pay particular attention in the areas of consolidated financial statements, joint arrangements and valuation of deferred tax assets when preparing and auditing their 2014 IFRS financial statements.

“This will contribute to ensuring the relevance and reliability of financial information provided to investors, and ultimately contributes to the proper functioning of Europe’s capital markets.”

The public statement also highlights two areas that should be considered in the preparation of the 2014 financial statements. ESMA and the national enforcers expect EU listed banks to provide relevant information in relation to material impacts resulting from the European Central Bank’s (ECB) comprehensive assessment of the banking sector and on any changes in the level of regulatory capital required.

In addition, ESMA considers that findings included in the 2013 ESMA Report on comparability of financial statements of financial institutions continue to be of high relevance for the 2014 annual reports.

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