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ESMA: European Enforcers See Good Level Of IFRS Application In 2010 – Still Room For Improvements In Some Areas

Date 21/10/2011

ESMA publishes today its second annual activity report on the enforcement of International Financial Reporting Standards (IFRS) of European enforcers in 2010 (ESMA/2011/182). The report gives a review of the 2010 activities of accounting enforcers within the European Economic Area (EEA), showing that overall the level of enforcement activity in 2010 was similar to 2009. About 1,700 financial reports were reviewed, of which 1,000 (compared to 1,200 in 2009) were subject to a full review and 700 (900 in 2009) to a partial review. These reviews resulted in around 700 (2009: 730) enforcement actions by national enforcers of which one out of five were subject to European co-ordination. Enforcers recognised that during a period of continuous deterioration of economic conditions, impact of risks and uncertainties on estimates and judgements used in the preparation of financial information are key for giving a proper understanding of the financial information.

Steven Maijoor, Chair of ESMA, noted:

“The main objective of financial reporting is to provide transparency on the financial performance and position of a company to investors and the wider public. Enforcing the correct application of international accounting standards is a key regulatory tool to ensure this. This report shows the important role ESMA plays in the European co-ordination of coherent enforcement through co-ordinating the numerous actions taken by national competent authorities. With increased responsibilities assigned, ESMA, together with national competent authorities will continue to further improve its activities ensuring consistent application of IFRS in Europe and ensure that accurate, clear and consistent information is
provided to investors.”

ESMA co-ordinates EEA enforcers

The report published today is based on the activities of the European Enforcers Co-ordination Sessions (EECS) which operates under the oversight of the Corporate Reporting Standing Committee of ESMA. The main objective of the EECS is to co-ordinate the enforcement activities of Member States in order to increase convergence amongst European enforcer’s activities which should contribute to fostering investor confidence. Currently, 38 organisations from 29 countries are represented in the EECS.

On-going discussion on the enforcement of IFRS

The main issues arising from the accounts subject to partial review (700 accounts) and full review (1000 accounts) representing 10% and respectively 15% of all listed entities in the EEA were in relation to the following: impairment of assets, financial instruments disclosure, operating segments, going concern, and current/ non-current classification of liabilities. Other accounting areas identified by enforcers and discussed within EECS were: disclosure on impairment of non-financial assets, measurement and presentation of non-current assets held for sale and discontinued operations or aspects related to share-based payments. A range of topics has also been discussed with representatives of the IFRS Interpretations Committee (IFRS IC), as part of the regular feedback EECS is providing to the IFRS IC.

The enforcement actions taken by enforcers as a result of their reviews included actions requiring the issuance of revised financial statements, corrective notes or other public announcement. Around 240 of the actions taken by enforcers required public corrective notes, or, in some cases issuance of revised financial statements.

Other enforcement related activities

In addition to enforcement of financial statements, ESMA published on 26 October 2010 a study on the application of disclosures related to financial instruments (CESR/10-1183), started the revision of its enforcement standards and provided the International Accounting Standards Board (IASB) with some proposed amendments to IFRS 8 – Operating Segments.

In order to achieve global consistent application of IFRS, ESMA will organise a second seminar on exchanging experiences between global enforcers of IFRS and also maintained its regular dialogue with third country authorities which have adopted or are in the process of adopting IFRS, such as the U.S. Securities and Exchanges Commission (U.S. SEC) and the Japanese Financial Services Authority (JFSA).