Background
On 8 January 2024, 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 2023 (“FY2023”), 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 2024.
European common enforcement priorities
As in previous years, ESMA together with the European national accounting enforcers, including the CSSF, have identified European common enforcement priorities (the "ECEPs") for the 2023 annual reports, which are detailed in ESMA's public statement of 25 October 2023.
Focus points of CSSF enforcement campaign
The CSSF noted the following with respect to its upcoming enforcement campaign:
IFRS financial statements: climate related matters
The CSSF stresses out that the disclosures on climate-related topics need specific and relevant information on how climate related risks were factored in the financial statements. The CSSF also underlines the importance of considering climate-related risks and opportunities in terms of impairment testing of non-financial assets. With respect to expected cash flows, the CSSF invites issuers to envisage various probability-weighted assumptions as well as a correlation between them.
IFRS financial statements: Macroeconomic environment – increase in interest rates and impact on (re)financing
The recent interest rate hikes might have significant consequences for issuers highly dependent on financial debt. In this context, the CSSF explains that:
- issuers should provide information on how changes in the macroeconomic environment affect their risk exposures (distinguishing between floating rate and fixed rate financial instruments) and how such risks are managed;
- a sensitivity analysis, showing how profit or loss and equity would have been affected by reasonably possible changes in interest rates, is important;
- issuers should consider providing disclosures about covenants and the impact of any potential breaches, and
- renegotiated financings during the relevant year merit adequate disclosure.
IFRS financial statements: Macroeconomic environment – fair-value measurement and disclosures
The CSSF encourages issuers:
- to explain how all key valuation inputs were determined in the case of investment properties measured according to the fair value model; the decline in the volume of real estate transactions should be considered;
- to provide sensitivity analysis for key observable input. Issuers should also describe any significant changes in valuation techniques and inputs used, and
- to disclose the fair value of each class of financial assets and liabilities, including those that are measured at amortised cost.
Non-financial statements
With respect to non-financial statements, the CSSF:
- reminds that the EC adopted delegated acts related to Regulation (EU) 2020/852 ("Taxonomy Regulation") which include updated tables of mandatory reporting obligations and technical screening criteria.
- encourages issuers to anticipate the entry into force of the Directive (EU) 2022/2464 ("CSRD") and the related European sustainability reporting standards by adapting their policies and procedures timely.
The CSSF will continue to assess how issuers comply with alignment of their economic activities with climate change mitigation and adaptation objectives. The CSSF underlines the importance of disclosures on climate-related targets, actions and progress.
Alternative performance measures (“APM”)
The CSSF draws the attention of issuers to the treatment of capital and operating expenditure (“CapEx” and “OpEx”). If a CapEx and OpEx measure is not calculated in compliance with definition provided in the Taxonomy Regulation, then it shall be considered as APM. The CSSF notes that the place of disclosure in the management report may be relevant in determination if a CapEx and OpEx shall be treated as APM.
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