The European Securities and Markets Authority (ESMA ) and its national enforcers in 2022 took enforcement actions against 225 issuers whose securities are admitted for trading on European regulated markets. The actions are based on their financial statements drawn up in accordance with the International Financial Reporting Standards (IFRS).

ESMA Highlights Biggest Shortfall

The actions were mostly directed at resolving shortcomings related to “accounting for financial instruments, impairment of non-financial assets, presentation of financial statements and revenue recognition.” Other shortcomings relate to recognition and measurement infringements (13%) and disclosures (25%).

The securities regulator disclosed these in its 2022 Corporate Reporting Enforcement and Regulatory Activities Report released on Wednesday. The enforcement actions, which dropped from 250 in prior year, are based on a total of 640 IFRS-compliant financial statements the regulators examined last year. This figure represents 16% of all issuers.

“Material departures from IFRS were assessed in relation to recognition and/or measurement and presentation of assets and liabilities, as well as to related disclosures since the concept of materiality is pervasive to the financial statements as a whole,” ESMA explained.

The regulator added: “In particular, it could be reasonably expected that omitting, obscuring, or misstating material information in the notes could influence decisions that primary users of the financial statements make on the basis of those financial statements.”

In 2021, ESMA and its national enforces undertook 771 examinations of IFRS-compliant financial statements, representing 17% of all issuers. In addition, they took enforcement actions against 250 issuers during that year.

EMSA Shares Finding on 2021 Enforcement Priorities

Meanwhile, ESMA in 2021 issued the European Common Enforcement Priorities Statement (ECEP) for year-end IFRS financial statements. Last year, the securities regulator and its enforcers examined 171 securities issuers to check for adherence to these priorities.

ESMA said it found that “there is significant room for improvement in disclosures of climate-related matters by issuers in their financial statements.” The regulator added that although its enforcers found only a few "material departures" from IFRS, more effort is needed to improve the level of transparency in the application of requirements related to expected credit losses.

Additionally, ESMA found that “issuers generally took ESMA’s recommendations on COVID-19 into consideration in an appropriate manner.”

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