In October, the European Securities and Markets Authority (ESMA) released its 2018 enforcement priorities for listed entities. They mainly focus on IFRS 9 and IFRS 15, which are effective from 1 January 2018, as well as on IFRS 16, which goes live in about a month, on 1 January 2019.
Why are these priorities important in Luxembourg? Well, anyone who looks into a crystal ball will see the CSSF issuing its own enforcement priorities soon, and history has taught us that these will be the same as ESMA's, with probably a few additional ones. Thus, the CSSF will be the one monitoring and supervising ESMA's IFRS requirements, and issuers subject to the transparency law in Luxembourg obviously must pay attention to the CSSF. Even non-listed issuers should take note, since ESMA's IFRS requirements are deemed relevant at a European level.
In reading the ESMA statement, I found some important aspects on IFRSs 9, 15, and 16 worth discussing.
Disclosures, disclosures, disclosures
First, ESMA requires issuers to have entity-specific disclosures, which means entity-specific accounting policies for IFRSs 9 and 15. As IFRS 16 is not yet effective, issuers must follow IAS 8, which requires them to show its impact on their financial position and performance—and ESMA expects these impact disclosures to be entity-specific.
In its enforcement priorities, ESMA also puts further attention on the disclosures themselves: for IFRSs 9 and 15, companies needs to disclose the transition impact, along with explanations for each material impact on financial position and performance.
Some further details:
In IFRS 15, the disclosure objectives are articulated in paragraph 110: issuers must disclose sufficient information to enable users of the financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows that arise from contracts with customers.
Regarding IFRS 9, ESMA stresses that this standard applies to all issuers. In terms of disclosures, ESMA expects issuers to provide relevant material disclosures, taking into account the importance of financial instruments in their business operations.
For IFRS 16, issuers are expected to substantially complete their implementations, and to present qualitative and quantitative impact analyses thereof. On top of that, ESMA expects entities to provide sufficient explanation for the difference between IFRS 16 impacts and the minimum lease payments for operating leases under IAS 17.
Disclosures on judgments
A common point among all the new standards is the disclosures on judgments.
For IFRS 15, disclosures on significant judgements are required explicitly when, for example, the performance obligation is satisfied: the entity then needs to disclose the significant judgments made in evaluating when the control of goods or services was obtained by the client.
You might think, then, that you don't need to consider IAS 1 as the general requirement on judgment disclosure anymore—but this is not the case. ESMA says that there could be other judgements, not explicitly required by IFRS 15, that should be disclosed, for example the identification of separate performance obligations.
Regarding IFRS 9, ESMA mentions that disclosures on judgments are required generally when related to the ECL model. It also states that, when material, judgments on the application of SPPI criteria should be disclosed.
For IFRS 16, ESMA encourages issuers to present the judgments made during the estimation of the discount rate used to calculate the present value of remaining lease payments.
Next time on the blog
My next article will look at other requirements in the ESMA enforcement priorities, as there is much more in them to explain. Meanwhile, if you need an overview on the priorities, I invite you to read this article, or, for info on selecting key judgments, this one. On the new disclosures required by IFRSs 9 and 15, you can find relevant brochures here and here or you can visit our website for guidance on the new standards and sector-specific information.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.