ESMA announces enforcement priorities for 2017 financial statements

The European Securities and Markets Authority (ESMA) has published the priorities to be considered by public companies and their auditors in 2017 financial statements

The enforcement priorities encompass:

• Disclosure of the expected impact of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers.  ESMA stresses the need for high quality implementation of those standards and for enhancing the communication of their expected impact.  The need to improve disclosure of the impact is supported by a fact-finding exercise conducted by ESMA.
• Specific recognition, measurement and disclosure issues of IFRS 3 Business Combinations.  ESMA reminds issuers of the continued relevance of issues identified in its 2014 Report on IFRS 3, which on the basis of recent enforcement activity remains relevant.  In particular ESMA draws attention to the accounting for intangible assets, adjustments during the measurement period, bargain purchases, mandatory tender offers, business combinations under common control, contingent payments and fair value disclosures.
• Paragraph 44A of IAS Statement of Cash Flows, which requires disclosure for the first time of information that enables users to evaluate changes in liabilities arising from financing activities.  Although there are various ways to provide the required information, ESMA encourages users to use the tabular format of reconciliation as shown in Illustrative Example E to IAS 7.

ESMA also reminds issuers that:

• 2017 will be the first time that the requirements of the amended accounting directive to disclose non-financial and diversity information will be applied and that ESMA will co-ordinate the enforcement activities related to both non-financial and corporate governance information
• The Accounting and Transparency Directives require management to include a fair review of the development and performance of the business and the position of the issuer, together with the principal risks and uncertainties it faces

ESMA also urges issuers to:

• Meet the principles in the Guidelines on Alternative Performance Measures when including such measures in their financial statements; and
• Assess and disclose the associated risks and expected impacts on business strategy and activities to the extent they are potentially affected by Brexit.  The recognition and measurement of deferred taxes in accordance with IAS 12 Income Taxes is cited as one area where issuers may need to disclose major sources of risks and uncertainties whose resolution will depend on the outcome of Brexit negotiations

Further information is available from ESMA’s web site here.