ESMA Demands Transparency on COVID Impact in Interim Financial Reports
ESMA published a statement addressing the implications of COVID-19 pandemic on the half-yearly financial reports of listed issuers. The statement addresses the preparation of the interim financial statements according to IFRS and the interim management reports for the 2020 half-yearly reporting periods. It highlights the need for entities to provide updated information that is useful to investors to adequately reflect the current and expected impact of the COVID-19 situation on the financial position, performance, and cash flows of issuers. ESMA also highlights the importance of providing information on the identification of the principal risks and uncertainties to which issuers are exposed.
The COVID-19 outbreak may have triggered financial risks that were fully or partly unknown or not relevant at the end of the last annual reporting period. Events and transactions that might unveil these risks include, for example, debt re-negotiations, new financial arrangements, and the breach of debt covenants. In this respect, ESMA reminds issuers of the importance of providing disclosures regarding those risks and to consider the requirements in IFRS 7 Financial Instruments: disclosures regarding, in particular, the exposures of issuers to credit, liquidity, and other risks and the related sensitivities, to provide the necessary updates of the information presented in the latest annual financial statements. ESMA highlights that some of these disclosures are also relevant in relation to the calculation of expected credit losses in accordance with IFRS 9, including disclosures to explain the assumptions and judgments applied and other considerations addressed in the ESMA statement. ESMA also recommends that issuers should closely monitor developments in relation to accounting for COVID-19-related lease concessions based on the expected IASB amendments to IFRS 16 and the related endorsement process at European level, where material to their specific situation.
ESMA and European national enforcers will monitor and supervise the application of the IFRS requirements as well as any other relevant provisions outlined in the statement, with national authorities incorporating them into their examinations and taking corrective actions where appropriate. ESMA will collect data on how EU-listed entities have applied the recommendations and will take into account those findings, among other considerations, in setting the enforcement priorities for the annual financial statements for 2020. These findings will be reported in the ESMA report on the 2020 enforcement activities.
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Keywords: Europe, EU, Banking, Securities, COVID-19, Financial Statements, IFRS 9, Reporting, Disclosures, IFRS 16, ESMA
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