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ESMA recommends improvements in financial information enforcement

Jul 21, 2017
The European Securities Markets Authority (ESMA) has published the results of its peer review conducted into how national accounting enforcers examine IFRS financial information according to the ESMA guidelines on enforcement of financial information.

According to IAASA, the report identifies areas where national accounting enforcers can improve their enforcement and makes recommendations to support these improvements.
 
The peer review was carried out on the basis of a questionnaire sent to all national accounting enforcers, including IAASA, supplemented by on-site visits to seven jurisdictions: Germany, Italy, Malta, Norway, Portugal, Romania, and the UK.
 
The report identifies that further improvements are needed in relation to: 
 
  • The basis on which issuer reports are selected for examination;
  • The depth of inquiries into financial statements going beyond disclosure of information; and
  • The level of financial and human resources allocated by national accounting enforcers to enforcement activities.
The report also makes a number of recommendations where national accounting enforcers and/or ESMA should consider further action:
 
  • Enforcement of financial information should not be an ancillary function. National accounting enforcers should ensure that sufficiently skilled and dedicated staff are available for this activity;
  • A list of common risk factors should be created to be used by all national accounting enforcers in the selection of issuers for examination;
  • National accounting enforcers should use a common approach for the selection model, providing for the use of rotation and random selection in addition to selection based on identified risks;
  • National accounting enforcers should ensure that the selection models allow the coverage of the whole population of issuers in a member state over a 10-15 year cycle;
  • The default type of examination should be unlimited in scope. This examination should cover all relevant areas of the accounting framework (i.e. recognition, measurement, presentation and disclosure) and all relevant documents published by an issuer (e.g. the management report, consolidated and separate financial statements); and
  • National accounting enforcers are encouraged to ask issuers questions even where there is no suspicion of misstatement.