The European Securities and Markets Authority has published a statement detailing its 2016 European enforcement priorities.
The statement identifies financial reporting topics listed companies and their auditors should pay close attention to when preparing and auditing IFRS financial statements for the year ending 31 December.
The 2016 priorities capture the reporting of financial performance, the distinction between financial liabilities and equity instruments and disclosures around the impact of new IFRSs.
In relation to employee benefits accounting under International Accounting Standard 19, ESMA has taken the step of reminding preparers that remeasurements of the defined benefit (DB) liability/ asset should not be recycled from Other Comprehensive Income.
ESMA argues that the prohibition on recycling is in line with paragraph 122 of IAS 19.
Further, in relation to the UK Brexit referendum, ESMA has signalled businesses must disclose the principle risks they face as a result of the vote, as well as detail the steps they have taken to mitigate that risk.
Of particular interest to DB sponsors in the wake of the Brexit vote, ESMA’s statement singles out fair-value disclosures under IFRS 13, as well as disclosures about the fair value of scheme assets under IAS 19, as areas for attention.
The ESMA statement also urges preparers to start work on implementing a trio of standards affecting financial instruments (IFRS 9), revenue recognition (IFRS 15) and leases (IFRS 16) “as soon as possible”.
In particular, ESMA said issuers must focus on “the expected impacts in accordance with paragraph 30 of IAS 8 as soon as they are known or reasonably estimable”.
The supervisor’s warning comes as the Basel Committee on Banking Supervision seeks views a deferral of the International Accounting Standards Board’s new impairment model for regulatory purposes.
The committee cites “the limited time until the effective date of IFRS 9, and to allow thorough consideration of the longer-term options for the regulatory treatment of provisions”.
Its proposals are set out in a recently issued consultation paper entitled ‘Regulatory treatment of accounting provisions – interim approach and transitional arrangements’.
The deferral proposals affect the regulatory treatment of credit-loss provisions under both the standardised and the internal-ratings based approaches under the Basel regime.
In addition, the Basel Committee is also asking for views on whether a “transitional arrangement for the impact of ECL accounting on regulatory capital” is called for.
The consultation document explains that the committee wants to assess if “any transitional arrangement is warranted to allow banks time to adjust to the impact that the new ECL accounting standards will have on capital for regulatory purposes”.
This latest development comes after IPE revealed in March that prudential regulators were in the dark over the regulatory impact of the IASB’s new financial instruments accounting rules, International Financial Reporting Standard 9, Financial Instruments.
In a letter to the European Parliament’s Economic Affairs Committee, European Central Bank chairman Mario Draghi said the European System Risk Board had “not yet assessed the impact of the new accounting standards on the financial sector as a whole.”
The IASB launched its IFRS 9 project in 2009 to replace its existing financial-instruments accounting standard.
The European Union is expected to finalise its endorsement of the standard shortly for use by listed entities for accounting periods beginning on or after 1 January 2018.
Lastly, a study from data analysis specialists Jaywing Risk has found that, although lenders surveyed are optimistic about the benefits IFRS 9 will deliver, more than half fear that a lack of analytical expertise will hamper their ability to build compliant models.
The IFRS 9 Confident Report took soundings from 100 senior decision makers with responsibility for IFRS 9 within their organisation.
Among the sectors examined were UK banks and building societies, as well as consumer, auto and SME finance companies.
In terms of readiness, the Jaywing study reported that almost half of banks surveyed were in the implementation and testing phase, while building societies were lagging behind.