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Priorities for 2018 financial statements

Nov 11, 2018
Michael Kavanagh summarises the key points in ESMA’s recently published European common enforcement priorities for 2018 IFRS financial statements. 

The European Securities and Markets Authority (ESMA) has issued its annual public statement highlighting the common areas that European national accounting enforcers will be focusing on when reviewing listed companies’ 2018 IFRS financial statements.

Why should I care?

European enforcers, including IAASA in Ireland and the FRC in the UK, will be required to include the ESMA topics in their examinations of companies’ 2018 financial statements. As such the ESMA statement is essential reading for those within the remit of an EU accounting enforcement regime and could be of interest to all others involved in any aspect of financial reporting.


The layout and style of the ESMA statement are very different to previous years and very focused on the implementation of the new financial reporting standards. Now that the new financial instruments and revenue standards are effective – and with IFRS 16 due soon – ESMA clearly expects companies to deliver the required level of detail and transparency in their 2018 disclosures.

There are three 2018 prioritised topics:
  • specific issues related to the application of IFRS 15 Revenue from Contracts with Customers;
  • specific issues related to the application of IFRS 9 Financial Instruments; and
  • disclosure of the expected impact of implementation of IFRS 16 Leases.
In addition to the three 2018 prioritised topics, the ESMA statement highlights a number of other financial reporting considerations, namely:
  • Argentina being classified as a hyper-inflationary economy as of 1 July 2018;
  • disclosure of non-financial information with particular focus on environmental and climate change-related matters, and key-performance indicators relating to non-financial policies;
  • specific aspects of the ESMA Guidelines on Alternative Performance Measures (APMs); and
  • disclosures on the impact of Brexit.

The detail

The Statement goes into considerable detail on the three priorities. Here are some details the preparers should consider.

Applying IFRS 15

  • Identification and satisfaction of performance obligation when assessing revenue recognition patterns.
  • Assessing whether an entity acts as a principal versus an agent.
  • Maximising the use of observable inputs when determining transaction price and how this is allocated to multiple performance obligations.
  • Presentation of contract assets and contract liabilities upon transition.
  • Whether disaggregation of revenue is sufficient to enable users to understand the main drivers in revenue.
  • Whether sufficient information has been disclosed, including more granularity on significant judgements.

 Applying IFRS 9

  • Disclosing the nature and effect of initially applying IFRS 9 per the specific transitional disclosure requirements of IFRS 7 Financial instruments: Disclosures, including:  
    • reclassifications of financial assets and liabilities; and
    • reconciliations of the closing impairment allowances under IAS 39 Financial Instruments: Recognition and Measurement to the opening loss allowances under IFRS 9
  • New ‘business as usual’ disclosures in IFRS 7 – including new or expanded disclosures about credit risk and hedge accounting.
  • Presentation of interest revenue.
  • There is a specific section dealing with applying IFRS 9 to credit institutions and insurance undertakings/conglomerates.

 Disclosures on the impacts of implementing IFRS 16

  • Entity-specific disclosures including:  
    • imminent changes in accounting policies, transition approach and use of practical expedients; 
    • expected impacts, including quantitative information, which ESMA expects to be known or reasonably estimable; and
    • explaining the differences between the current IAS 17 Leases disclosure of minimum lease payments for operating leases and IFRS 16.
For more detail, the ESMA public statement is available here.

Michael Kavanagh is a Director in the Department of Professional Practice in KPMG.