Europe’s market watchdog the European Securities and Markets Authority has revealed it expects the International Accounting Standards Board’s (IASB) new financial instruments accounting standard to have a major impact on financial institutions.
The new standard takes effect for the reporting period beginning on or after 1 January 2018.
In a report on enforcement and regulatory activities during 2015, ESMA said it would put out “two statements to inform the market and encourage listed companies to provide timely and relevant information on the expected impact of the new financial reporting standards once the endorsement timeline is clarified”.
The second statement will relate to the IASB’s new revenue-recognition standard IFRS 15, Revenue from Contracts with Customers.
The IASB launched its bid to develop International Financial Reporting Standard 9, Financial Instruments (IFRS 9), in 2009 in the wake of the financial crisis.
Alongside a simplified classification and measurement model for financial assets, the new standard also features what its supporters describe as a more forward-looking impairment model for financial assets held at amortised cost.
ESMA said: “IFRS 9 is expected to have a major impact on the financial statements of financial institutions, mainly because it will determine a material increase in the impairment losses, with effects on the performance, and require major changes in IT systems.”
It remains unclear when the European Union will endorse IFRS 9.
Although the European Commission and the European Financial Reporting Advisory Group support the standard, it has met with stiff opposition from many investors.
ESMA’s main role is to promote the consistent application of International Financial Reporting Standards (IFRS) and foster convergence of enforcement practices across Europe.
To this end, ESMA has a number of enforcement tools at its disposal to improve the quality of financial information and ensure the consistent application of financial reporting standards.
Its 2014 ESMA Guidelines are intended to make sure issuers in the EU comply with the requirements of the Transparency Directive.
Similarly, its 2015 ESMA Guidelines on Alternative Performance Measures are intended to promote the “usefulness and transparency of Alternative Performance Measures included in prospectuses or regulated information”.
Since 2012, ESMA has also identified each European Common Enforcement Priorities in a bid to promote the consistent application of European securities and markets legislation and IFRS among issuers and their auditors.
The 2015 look-back also reveals that, during 2015, ESMA and national enforcers examined 189 listed issuers’ compliance with IFRS in 26 countries, focusing on areas identified in the 2014 European Common Enforcement Priorities.
These steps led regulators to take enforcement action against 40 issuers.
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