Background
On 2 January 2023, the CSSF published a press release for the attention of issuers of securities subject to the law of 11 January 2008 on transparency requirements for issuers of securities, as amended (the "Transparency Law") and their auditors (the "Press Release").
With this Press Release, the CSSF highlights, in the context of the preparation of the financial statements of issuers for the financial year ending 31 December 2022 ("FY2022"), in accordance with the International Financial Reporting Standards (the "IFRS") and/or the preparation of the non-financial report of issuers in accordance with the law of 23 July 2016, a number of points that shall be subject to specific monitoring by the CSSF during 2023.
European common enforcement priorities
ESMA together with the European national accounting enforcers, including the CSSF, have identified European common enforcement priorities (the "ECEPs") for the 2022 annual reports, which are detailed in ESMA's public statement of 28 October 2022.
Focus points of CSSF enforcement campaign
The CSSF noted the following with respect to its upcoming enforcement campaign:
Climate related matters
The CSSF supports the ESMA recommendation to group climate related disclosures into one single note or, at least, to provide a guidance on where climate related matters are disclosed in the notes.
Direct financial impacts of Russia's invasion of Ukraine
Issuers concerned must present clear and detailed qualitative and quantitative information on the financial impacts, both at the balance sheet and comprehensive income levels, as well as the judgments and assumptions made.
Macroeconomic environment
The current challenging macroeconomic environment must be assessed and reflected by issuers. The main elements to be considered cover the increase in inflation, interest rates and energy costs.
In this context, when focusing on impairment of non-financial assets, employee benefits, revenue from contracts with customers, and financial instruments, the CSSF will pay particular attention to:
- discount rate - the interest rate increase by the European Central Bank has a significant impact for issuers with respect to a potential impairment of non-financial assets; and
- inflation - issuers have been asked to disclose sufficient information on how inflation affects their profits, margins, liquidity as well as on their overall level of activity and explain how the forecasts have been revised to take into consideration price increase.
Issuers are asked to assess the effect of this new macroeconomic environment when applying the following standards (in addition to those mentioned in the ESMA statement): IAS 1; IAS 2; IAS 10; IAS 12; IAS 37; IFRS 2; IFRS 13; and IFRS 16.
- As reminded by ESMA, non-financial statements shall include information on the impact of climate change in application of the Non-Financial Reporting Directive and in anticipation of the requirements of the future European Sustainability Reporting Standards that will apply with the forthcoming Corporate Sustainability Reporting Directive.
- The FY2022 is the first year for which non-financial undertakings are required to disclose taxonomy eligibility, alignment of their economic activities with climate change mitigation and adaptation objectives.
- The CSSF recommended that entities effectively measure their environmental and social scopes across their entire chain, and encouraged issuers to provide transparency on the robustness of their data collection processes when preparing non-financial reporting.
- Alternative performance measures ("APMs"): The CSSF will pay particular attention to the following requirements during its campaign:
- APM labels should be meaningful and clear in order to avoid confusing or misleading the users of these measures;
- issuers should identify every APM presented in management reports or press releases; and
- disclosure of APMs should not be more prominent than other measures that stem directly from the financial statements.
Finally, noting that issuers have been obliged since financial year 2021 to prepare their annual financial reports in compliance with the European Single Electronic Format (ESEF), the CSSF reminds issuers and auditors that for their 2022 annual financial reports further mandatory elements will have to be marked up if they are present in the consolidated financial statements.
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