ESMA Report: Recurring Issues In IFRS Statements

In April, ESMA published its findings on the European Common Enforcement Priorities 20161 (read more about ESMA's 2017 activity report in this article).

In terms of scope, ESMA examined the financial statements of 170 issuers of varying sectors and levels of market capitalisation. Around 25% of them were from the industrial sector, and 13% from the financial sector.

In this article, we will look at what recurring issues ESMA found.

Presentation of financial performance and financial position

In the financial statements, ESMA found many variations on how subtotals were labelled (operating results, operating income, adjusted operating income to name a few), which is not surprising since IAS 1 doesn't provide guidance on this. This discrepancy unfortunately hinders the comparability of figures, leading ESMA to support the IASB's project to improve and standardise financial statement presentation.

In some cases (22%), issuers used terms for the subtotals that are disallowed by IAS 1.87 (including exceptional, non-recurring, unusual, and infrequent). ESMA has said that, if such titles are used, then issuers should also disclose the significant judgements made in the accounting policies in relation to such material-related classifications.

ESMA also checked the line items and subtotals in the "statement of financial position" section, to see if they were relevant in understanding the issuer's financial position.

Overall, according to ESMA, issuers comply with IAS 1 in most cases. It does note, however, that for cases of noncompliance the enforcers do not have much guidance from the IFRS.

Segment information

This issue is also one of the CSSF's enforcement priorities for 2017, so it's worth considering ESMA's findings and recommendations on it.

ESMA found that, in some cases, entity-wide disclosures as required by IFRS 8.32-34 were included either partially or not at all. It was the same story for reconciliations of total segment revenues and segment assets (where the segment asset amounts were regularly provided to the chief operating decision-maker). IFRS 8.32-34 requires information about products, services, geographical areas, and major customers to be reported, and disclosed separately only if not provided as part of the reportable segment information.

Furthermore, there were some missing judgements related to aggregation criteria. IFRS 8.22 (a) requires that such judgments be mentioned, alongside a summary of the operating segments...

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