Up until now, there has only been one direction of travel for European lawmakers when it comes to the transparency requirements imposed on listed companies. Such companies have had to report to investors on their business performance more frequently and in greater detail, with the aim of ensuring maximum transparency. The latest changes to the Transparency Directive therefore represent a change of direction. The previous obligation to provide quarterly financial reports no longer applies following translation of the amendments to the Transparency Directive into German law. The obligation to publish annual financial statements and a half-yearly financial report remains in place. The changes are aimed at encouraging a longer- term view of listed companies. The German Stock Exchange has responded to these changes by amending the regulations for companies listed on the Prime Standard.
Companies listed on the regulated market which are not subject to any additional requirements (e.g. those on the General Standard of the German Stock Exchange) have up to now been required to comply with the minimum statutory requirements, which included publication of interim reports in order to provide information on Q1 and Q3. Companies had considerable discretion in terms of the actual content due to the abstract requirement that interim reports should highlight the material events and transactions in the reporting period and their impact on the issuer’s financial situation, along with describing the company’s financial situation and the results themselves. Interim reports were not required to contain quantitative statements, for example, and in particular there was no requirement for a profit and loss statement or balance sheet.
The German Stock Exchange has up until now required companies listed on the Prime Standard to publish interim reports in accordance with IFRS Standard IAS 34 for the purpose of providing information on Q1 and Q3, i.e. provide information that exceeds the minimum statutory requirements. These types of interim report are condensed financial statements which correspond to annual financial statements in accordance with IFRS with regard to their essential components. As such, they include a profit and loss statement, balance sheet, cash flow statement and notes. The requirements relating to the content of an interim report in accordance with IAS 34 are highly detailed and formal, leaving little scope for individual interpretation.
The reporting obligations related to Q1 and Q3 have now been dropped for companies listed on the regulated market which are not subject to any additional requirements (e.g. those on the General Standard of the German Stock Exchange). However, these companies are free to inform investors voluntarily about their business performance in Q1 and Q3.
The German Stock Exchange has responded to the statutory changes by retaining the quarterly reporting requirement for companies listed on the Prime Standard. However, Q1 and Q3 reporting no longer needs to be provided in the form of interim reports in accordance with IAS 34, but rather as quarterly statements. The content requirements are essentially the same as those which apply to interim reports by companies on the General Standard. Companies on the Prime Standard can continue to provide more comprehensive reporting on a voluntary basis if they wish to do so, e.g. by continuing to publish interim reports in accordance with IAS 34.
Impact on reporting practice
The new regulations will apply for the first time to the first quarter of 2016. It can be observed that companies belonging to the DAX index family, i.e. which are listed on the Prime Standard use many different options to react to the new legal requirements that range from retaining full reporting in accordance with IAS 34 or abridged versions of such reports to fulfilment of the minimum requirements only with only the most important quantitative details.
Companies listed on the Prime Standard should use their new- found freedom to focus their reporting on information that is of key importance to investors. Interim reports in accordance with IAS 34 contain a host of information that investors do not really need or understand, thereby obscuring the main points. When defining their future reporting policy, companies should liaise with investors to ensure in particular that all key financial data relevant to individual investors is included.
Companies on the General Standard would also be well advised to provide investors with financial information on Q1 and Q3 on a voluntary basis.