On October 29, 2021, the European Securities and Markets Authority (“ESMA“) has published its annual public statement outlining common priorities for the implementation of the 2021 annual financial reports (“AFR“) of listed companies (the”Public statement“).
The public statement reflects the main points that European authorities will take into account when reviewing AFR 2021.
The four main topics addressed by the public statement are:
- Impacts of COVID-19;
- Climate related issues;
- Expected credit losses (“ECL” ); and
- Disclosures related to taxonomy.
With respect to the above topics, the public statement highlights the priorities (if any), through three main sections:
- Section 1: Priorities related to IFRS financial statements;
- Section 2: Priorities Related to Non-Financial Statements; and
- Section 3: Other Considerations Regarding Alternative Performance Measures.
Overview of priorities
Section 1: Priorities related to IFRS financial statements for AFR 2021
Impacts of COVID-19 – Listed companies should undertake a careful assessment and sufficiently disclose the long-term impacts of COVID-19 on going concern assumptions and any significant judgment / estimate of uncertainty. Listed companies should also assess the recovery from COVID-19, which should include impacts on financial statements and related information (including information on government support measures and the impact resulting from the end of this assistance.)
Climate issues – Listed companies (and their auditors) must take climate risks into account, insofar as these risks are significant for IFRS financial statements. Reference should be made to the International Accounting Standards Board’s educational material on the effects of climate-related issues and materiality assessment based on various factors.
ECL Disclosures – Credit institutions should apply increased transparency when significant adjustments are used in ECL measurements. In addition, disclosures should include information about any material change in credit risk or whether financial assets are impaired, credit risk exposures and guarantees, explanations of forward-looking information and whether material climate-related risks and to the environment are taken into account in credit risk management.
Section 2: Priorities linked to extra-financial statements for AFRs 2021
Impacts of COVID-19 – Listed companies must disclose how COVID-19 affects their plans to meet sustainability goals and non-financial key performance indicators.
Climate issues – Listed companies must disclose information about their policies (and results), pursued in relation to non-financial matters. Further disclosures on climate change including any risk and mitigation, implementation plans to meet pre-defined goals and any financial consequences arising from climate related issues should be made.
Article 8 Taxonomy regulations – Listed companies must disclose the taxonomic alignment of their economic activities in accordance with Article 8 of Regulation (EU) 2020/852 (taxonomic regulation).
Section 3: Considerations for Alternative Performance Measures (“APM”).
In the public statement, ESMA refers to the relevant references in its “Questions and Answers” document relating to the “NPA Guidelines” published on April 17, 2020 and the considerations that listed companies should take in this regard.
In the public statement, ESMA also reminds listed companies that from FY 2021 all AFRs must be prepared in accordance with the Single European Electronic Format – for more information, please Click here.
To read ESMA’s public statement, please Click here.