Luxembourg: ESMA's Activity Report 2017: What You Need To Know

Last Updated: 25 May 2018
Article by Stephan Lego-Deiber

Most Read Contributor in Luxembourg, August 2019

In April, the European Securities and Markets Authority (ESMA) issued its report on the Enforcement and Regulatory Activities of Accounting Enforcers 2017. Read on for highlights, results, and new priorities.

By the numbers

Of the 5,956 IFRS issuers in Europe, 142 are in Luxembourg, 528 in France, and 448 in Germany. The largest proportion by nation is the UK, with 1,315, though it will be interesting to see whether Brexit affects that.

ESMA's report looked at the interim and/or annual financial statements of 1,141 issuers, or around one fifth of the total. This is approximately the same figure as their last report, though more ex-ante examinations were done (136 in 2017 compared to 111 in 2016).

Enforcement actions were taken towards 328 issuers to address material departures from IFRS, a 6% increase over the prior year. The main issues related to financial statement presentation, impairment of non-financial assets, and accounting for financial instruments.

Findings

Among other things, compliance with the European Common Enforcement Priorities (ECEPs) was assessed in the report. The main results: ESMA took 76 enforcement actions against a total of 56 issuers related to the following:

  • presentation of financial statements (i.e. compliance with IAS 1)
  • distinction between equity and financial liabilities
  • transitional disclosures of the potential impact of IFRS 9 in the FS of non-financial institutions

Besides the enforcement priorities for 2017 (details in this article), the report also has the results of a fact-finding exercise on IFRS 9 and 15 impact disclosures: only a few issuers disclosed the quantitative impact of the two new standards. In the report, ESMA added that disclosures should be entity-specific.

ESMA has also reviewed the Fair Value Measurement in IFRS statements in order to contribute to the International Accounting Standard Board's (IASB's) IFRS 13 project (more on that here).

Supervisory convergence

Another of ESMA's projects is to strengthen supervisory convergence by sharing best practices with/among European enforcers. To this end, it examined a portion of the Enforcement of Financial Information (EFI) guidelines as part of a peer review, concluding that better convergence is needed in:

  • the selection method for choosing which issuers to review
  • examination of FS (practices, procedures)
  • resources (human, financial) allocated to the examination

For issuers, selection method might be the most interesting of these. ESMA's recommendations on this front are to have a common approach for selection that considers risks, but that also has an element of rotation and randomness. More interestingly, the report suggests that regulators should cover their respective whole populations of issuers within 10-15 years. Regarding scope, regulators should pose questions to issuers even if there is no suspicion of misstatement.

All in all, the direction is towards in-depth examinations (by default, the scope is unlimited) and towards covering every issuer within a suggested period.

Work programme for 2018

Among the new priorities for 2018 is the promotion of common supervisory approaches and of enforcement priories related to IFRS 9 and 15. ESMA will furthermore concentrate on the narrative parts of reports like management and non-financial information, as well as Alternative Performance Measures (APMs). Lastly, ESMA will focus on the European Single Electronic Format (ESEF) as well (details here).

Check back soon for our next article, which will address at ESMA's ECEP 2016 findings.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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