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TechTalk Blog - European Securities & Markets Authority Issues Priorities That Include Public Companies Issuing Non-Financial, Diversity & Environmental Information in 2017 Financial Statements Disclosed to Capital Markets

By David Colgren posted 11-20-2017 02:19 PM

  

Late last month The European Securities and Markets Authority (ESMA) published on its website the priorities to be considered by listed companies, and their auditors, when preparing and auditing their 2017 financial statements.

 

These priorities are set out in the annual Public Statement on European Common Enforcement Priorities (Statement), through which ESMA promotes the consistent application of the International Financial Reporting Standards (IFRS).

 

ESMA also highlights that the 2017 year-end will be the first time that the requirements of the amended Accounting Directive to disclose non-financial and diversity information will become applicable for certain large groups and undertakings.

 

Steven Maijoor, Chair (ESMA), said:

"Investors increasingly value information on social and environmental impacts of issuers’ activities. Consequently, ESMA highlights that both financial and non-financial reporting requirements are essential to support sustainable and long-term investment decision-making in Europe”.

 

Why is this announcement from ESMA significant to management accountants worldwide?

 

First, ESMA is the super – UBER Securities and Markets Regulator for the European Union -- ESMA works in the field of securities legislation and regulation to improve the functioning of financial markets in Europe, strengthening investor protection and co-operation between national competent authorities. There are about 12,000 public companies based in the EU that are under the regulatory watch of ESMA based in Paris, France.

 

Companies, auditors and global investment analysts will be reviewing newly required and disclosed data related to the following requirements below. Management accountants will play a major role in obtaining and preparing this information required for disclosure in the financial reporting process starting in 2018. Since smaller companies are part of these larger company supply chains they will also have to disclose additional information.

 

We will have to stay tuned to see if the United States Securities and Exchange Commission will institute similar disclose rules as EU companies move forward with this additional disclosure to meet investment demand. Will US public companies be at a disadvantage in competing for global investments where CSR requirements, disclosure and independent verification is becoming more common place. Most of the largest corporations in America have move forward with these disclosure requirements and have issued separate “sustainability reports” but in EU the securities regulator has mandated that “integrated reports” now be published by public companies to reflect their value creation.

 

Using Digital Reporting to Reflect a Company’s Disclosures More Effectively to Stakeholders

 

ESMA has also mandated that by 2020 public companies in the EU begin publishing their primary financial statements using Inline XBRL so financial information is distributed to stakeholders and the capital markets worldwide in a machine-readable format for easy extraction and analysis in different languages, currencies and accounting rules.

 

At the recent DATA AMPLIFIED CONFERENCE in Paris earlier this month Alain Deckers with the EU Commission said that XBRL data tags of financial statement information would also require independent auditor assurance.

 

The question as we move forward for the management accountant is – will this additional corporate non-financial statement information disclosure (especially sustainability data) also require data tagging using Inline XBRL and can both financial and non-financial XBRL data be compared so financial and non-financial reporting can be effectively deployed to assist investors and the capital markets as we deal with such issues as climate change, money laundering, political bribes to foreign governments,  economic diversity inclusion, cybersecurity, corporate governance, human rights, and prevention of human trafficking, child labor/slavery.

 

As the capital markets shift resources to address global issues – the capital markets can play a major role in creating a better world for future generations and support freedom and opportunity for all individuals from both social and economic perspectives.

 

Management accountants can play a key role in this capital markets transformation through enhanced and relevant corporate disclosure by helping companies prepare and release this critical information key to important investment decisions.      

 

The EU ACCOUNTING DIRECTIVE states:

 

Companies that must comply

EU rules on non-financial reporting only apply to large public-interest companies with more than 500 employees. This covers approximately 6,000 large companies and groups across the EU, including

  • listed companies
  • banks
  • insurance companies
  • other companies designated by national authorities as public-interest entities

Information to be disclosed

Under Directive 2014/95/EU, large companies have to publish reports on the policies they implement in relation to

  • environmental protection
  • social responsibility and treatment of employees
  • respect for human rights
  • anti-corruption and bribery
  • diversity on company boards (in terms of age, gender, educational and professional background)

How to report

Directive 2014/95/EU gives companies significant flexibility to disclose relevant information in the way they consider most useful. Companies may use international, European or national guidelines to produce their statements – for instance, they can rely on

In June 2017 the European Commission published its guidelines to help companies disclose environmental and social information. These guidelines are not mandatory and companies may decide to use international, European or national guidelines according to their own characteristics or business environment.

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