On the 29 October 2021, the European Securities and Markets Authority (“ESMA”) issued its annual public statement outlining the common enforcement priorities relating to the 2021 Annual Financial Reports (“AFRs”) of listed companies (the “Public Statement”).

The Public Statement reflects the main points the European enforcers will consider during their examination of the 2021 AFRs.

The four main topics addressed by the Public Statement are:

  • Impacts of COVID-19;
  • Climate-related matters;
  • Expected credit losses (“ECL”); and
  • Taxonomy related disclosures.

In respect to the above topics, the Public Statement highlights the priorities (as applicable), by way of three main sections:

  • Section 1: Priorities related to IFRS Financial Statements;
  • Section 2: Priorities related to non-financial statements; and
  • Section 3: Other considerations relating to Alternative Performance Measures.

Priorities Overview

Section 1: Priorities related to IFRS Financial Statements for the 2021 AFRs

Impacts of COVID-19 – Listed companies are to undertake a careful assessment of and sufficiently disclose the longer-term impacts of COVID-19 on the going concern assumptions and any significant judgements/estimations of uncertainty. Listed companies also need to assess the recovery from COVID-19, which are to include impacts on the financial statements and corresponding disclosures (including disclosures on government support measures and the impact occurring through the termination of such assistance.)

Climate-related matters – Listed companies (and their auditors) are to consider climate risks, to the extent that such risks are material to the IFRS financial statements. Reference is to be made to the International Accounting Standards Board educational material on the effects of climate-related matters and the assessment of materiality based on various factors.

ECL disclosures – Credit institutions are to apply enhanced transparency when material adjustments are used in the measurements of ECL. Furthermore, disclosures are to include information on any significant changes to credit risk or whether any financial assets are credit impaired, credit risk exposures and collateral, explanations of forward-looking information and whether material climate-related and environmental risks are taken into account in credit risk management.

Section 2: Priorities related to non-financial statements for the 2021 AFRs

Impacts of COVID-19 – Listed companies are to disclose how COVID-19 is affecting their plans to meet sustainability targets and non-financial key performance indicators.

Climate-related matters – Listed companies are to disclose information on their policies (and their outcomes), pursued in relation to non-financial matters. Further disclosures on climate change, including any risk and mitigation, implementation plans to meet any pre-defined targets and any financial consequences arising from climate-related matters are to be made.

Article 8 Taxonomy Regulation – Listed companies are to disclose the taxonomy alignment of their economic activities in terms of Article 8 of Regulation (EU) 2020/852 (Taxonomy Regulation).

Section 3: Considerations relating to Alternative Performance Measures (“APMs”).

In the Public Statement, ESMA refers to the relevant references of its ‘Question and Answers’ document relating to the “Guidelines on APMs” issued on the 17 April 2020 and the considerations that listed companies need to take in this regard.

In the Public Statement, ESMA also remind listed companies that starting from the financial year 2021, all AFRs are to be prepared in compliance with the European Single Electronic Format – for more information, please click here.

To read the ESMA Public Statement, please click here.