Dr. Hanne Böckem
Partner, Audit, DPP
KPMG AG Wirtschaftsprüfungsgesellschaft
The European Securities and Markets Authority (ESMA) today published the European Common Enforcement Priorities for the upcoming audit season. The financial reporting topics identified together with European national enforcers, such as the Federal Financial Supervisory Authority (BaFin) in Germany, should be given particular consideration by capital market-oriented companies and their auditors when preparing and auditing financial reports for 2022.
This year's common European audit focus areas for the 2022 IFRS financial statements are:
- Climate-related matters: ESMA reminds on the one hand that information on climate-related matters in IFRS financial statements must be consistent with the corresponding non-financial information elsewhere (management report, non-financial statement). In addition, it expects that impacts of climate risks are taken into account when assessing impairment of non-financial assets. Furthermore, it points out that climate-related matters may lead to the recognition of provisions, e.g. through legal or constructive obligations to reduce CO2 emissions. Finally, ESMA notes that in the case of significant energy supply contracts, transparency should be established on their accounting treatment.
- Impact of Russia's invasion of Ukraine: ESMA reminds of a transparent presentation of the impact on the financial position and performance, referring in particular to FAQ No. 18 of the ESMA FAQs on APMs. Individual topics such as loss of control or significant influence, discontinued operations, disposal groups and impairments of non-financial assets should be intensively assessed in this context.
- Macroeconomic environment: ESMA expects to take into account the current macroeconomic environment (inflation, rise in interest rates, deterioration of the business climate) when measuring employee benefits, assessing impairments of non-financial assets and recognising revenue from customer contracts and expected credit losses on financial instruments.
With regard to non-financial information, ESMA has defined the following focus areas:
- Climate-related matters: In particular, ESMA highlights the importance of improved transparency in relation to the objectives of transition plans and requires company-specific, concrete disclosures in relation to greenhouse gas emission reduction targets and measures.
- EU taxonomy: ESMA points out that in the 2022 financial reports, extensive (quantitative and qualitative) disclosures on the taxonomy compliance of the issuer's economic activities will also have to be made for the first time and that, in addition to the use of the templates for the quantitative disclosures, meaningful explanatory disclosures will be of particular importance.
- Transparency: With regard to the scope of non-financial reporting, ESMA suggests in particular that the scope of reporting should go beyond the issuer's own business activities and should also cover upstream and downstream supply chains; in any case, it must be made clear what scope has been used as a basis for the non-financial reporting.
With regard to Alternative Performance Measures (APMs), ESMA expects issuers to comply with the APM guidelines and ESMA's questions and answers on APMs in relation to all APMs used.
In addition, with regard to the European Single Electronic Format (ESEF), ESMA emphasises that from the financial year 2022 onwards, issuers will now also have to label numerous, selected disclosures from the notes (so-called block tagging).
The public statement is available on ESMA's website.