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IFRS 13 and IAS 36 enforcement priorities for ESMA

Fair value measurement and impairment of non-financial assets are among the five European Common Enforcement Priorities of the European Securities and Markets Authority (ESMA).

ESMA chair Steven Maijoor said yesterday at EY's Financial Reporting Outlook conference in London that the five areas on which all European Union (EU) national authorities will focus when reviewing the financial statements of listed companies are:

  • Impairment of non-financial assets;
  • Measurement and disclosure of post-employment benefit obligations;
  • Fair value measurement and disclosure;
  • Disclosures related to significant accounting policies, judgements and estimates; and
  • Measurement of financial instruments and disclosure of related risks.

ESMA said these priorities aim at promoting the consistent application of IFRS across the EU and auditors should also acknowledge their importance when preparing and auditing the IFRS financial statements for the year ending 31 December 2013.

Maijoor said ESMA released enforcement priorities for the first time in 2012, an action that has been repeated this year as it's seen as a very useful tool to communicate with market participants such as preparers, auditors and investors.

With regards to impairment of non-financial assets, Maijoor noted that as a result of the current economic scenario the market value of many listed companies has fallen below their book value.

According to him that situation may indicate the use of impairment of losses and therefore the need for undertaking impairment tests.
"Unfortunately we have not seen sufficient progress in the way companies report and impairment is still too often not sufficiently and correctly addressed in the financial statements.

"Investors need more information on the reasonableness of cash flow projections and key assumptions used by management in determining value in use," he said.

Regarding fair value, Maijoor said there have been numerous discussions with respect to fair value measurement issues due to a lack of transparency in financial reporting.

"Measurement bases cannot always be well understood from what companies present in their accounts. The IASB's new standard (IFRS 13) relevant for items measured at fair value by a company -such as real estate properties, so not only relevant for banks- will be helpful in this respect," he said.

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