Enforcers view on priorities in financial reporting for IFRS accounts to be published in 2014

Transcription

1 ESMA/2013/ December 2013/Warsaw Enforcers view on priorities in financial reporting for IFRS accounts to be published in 2014 Roxana Damianov ESMA Senior Officer

2 2 Outline 1.European Enforcers Common Enforcement Priorities for 2013 accounts 2. Comparability of Financial Statements of Financial Institutions 2

3 Enforcers review over the IFRS application Objective - Supervisory convergence in Europe - Consistency in the IFRS application ESMA published on 11 November the common enforcement priorities for the review of the 2013 annual IFRS financial statements. ESMA and the NCAs will monitor the application of the IFRS requirements specific to these matters. NCAs will incorporate these topics into their reviews. ESMA will collect data on how European listed entities have applied the IFRS and communicate the results beginning Follow-up on 2012 priorities based on a sample of around 10% of the entities reviewed in

4 Enforcers common priorities for 2013 accounts (1/3) Impairment of non-financial assets (IAS 36) - Cash-flow projections consistency of key assumptions, back testing the assumptions from prior years - Key assumptions Entity specific Level of aggregation - Sensitivity analysis Disclosure Level of disaggregation Measurement and disclosure of post-employment benefit obligations (IAS 19) - Discount rate Consistency in methods 4

5 Enforcers common priorities for 2013 accounts(2/3) Fair value measurement and disclosure (IFRS 13) - Accounting policy and disaggregation New definition Disclosure of fair value by classes - Unit of account - Non performance risk Disclosure of CVA, DVA and non-performance risks - Disclosures: Level of fair value measurement hierarchy Transfers between levels Specific disclosures for level 3 Reconciliations 5

6 Enforcers common priorities for 2013 accounts (3/3) Disclosures related to significant accounting policies, judgments and estimates (IAS 1) - Summary of significant accounting policies - Judgements: most significant effect on financial statements - Sources of estimation uncertainties: most difficult, subjective or complex - Focus on relevance and entity specific information Measurement of financial instruments and disclosures of related risks, particularly relevant for financial institutions - General disclosures - Impairment of financial assets, forbearance practices and credit risk - Liquidity risk - Link to the Report published by ESMA 6

7 7 Outline 1. European Enforcers Common Enforcement Priorities for 2013 accounts 2.Comparability of Financial Statements of Financial Institutions 7

8 Objectives and scope 8 Background Financial and economic crisis: need for transparency and comparability Publication of other reports Cooperation with EBA and ESRB Scope 2012 IFRS financial statements of 39 major financial institutions from 18 jurisdictions Objectives Comparability of key areas of financial reporting by banks Compliance with IFRS pre-requisite for comparability Disclosure objectives of IFRS 7 and IAS 1 8

9 Areas of review 9 Areas of review Structure and content of the income statement Liquidity and funding including the effects of asset encumbrance Hedging and the use of derivatives Credit risk with a focus on credit risk management, forbearance practices, non-performing loans and country concentration risk; and Criteria used to assess impairment of equity securities classified as AFS 9

10 Income Statement structure Limited comparability - Interest income/expense - Net trading income Enhanced presentation and disclosure - Identified significant elements in individual line items - Linking the items to classes in the balance sheet Definitions - More to be done through IFRS definitions - Alignment in the IFRS financial statement due to FINREP Enhance consistency of terms used and definitions over time Provide clear description on elements included in every line. 10

11 Disclosures - Some provided only generic information on the risks policies and management - Most banks included quantitative information on the main funding sources including funding types. A minority reported concentrations in the funding sources Asset encumbrance Only a few provided quantitative information on encumbered or unencumbered assets detailed by asset type; for the rest it was not always clear which assets could be freely used to meet future liquidity needs Improve comparability by: Explaining the tables with narrative commentary Defining terms and presenting key indicators, inputs and assumptions used in liquidity risk management Linking liquidity and funding with bank s strategy and objectives Liquidity and funding Comprehensive disclosures that would convey a clear and interlinked view of maturity analysis of financial instruments with liquidity position and funding sources Provide sufficient and sufficiently granular information to identify those assets that are readily available for liquidity purposes or to meet funding needs 11

12 Hedging and use of derivatives Specific disclosures on hedge accounting and derivatives required by IFRS 7 but the level and depth varied significantly Types of instruments and their nominal values and fair values provided by nearly all Some provided general descriptions while some gave more entity-specific disclosures Unclear presentation of ineffectiveness of hedge accounting Less than a quarter provided information on CVA and DVA and only a few provided specific information on their valuation methodologies and inputs used Only a few financial institutions complemented their quantitative data on hedge accounting with narrative explanations Enhance disclosures on measurement methodologies and inputs to measurement of FV of derivatives, including the effects of counterparty and non-performance risks (CVA and DVA adjustments) in light of the requirements of IFRS 13 Fair Value Measurement Provide granular disclosures and link quantitative and qualitative information to enable users to form an overall picture of the use of derivatives and various hedging activities Provide the level of detail that enable users to understand the impact of hedging activities on the financial position and performance 12

13 Quantitative disclosures General compliance with the specific requirements Descriptions of internal rating systems were often very general Credit risk Maximum credit risk exposure not always reconcilable to the financial statements. Further analysis of the credit risk exposure was more often difficult to connect to other information provided and to the statement of financial position Enhanced disclosure on exposure to credit risk, its mitigation and analysis of specific concentrations of credit risk in order to enable investors to assess the overall credit risk Financial assets impairment Differences between IBNR and other types of portfolio assessment not well defined Insufficient disclosures to understand the adjustments made to Basel 2 parameters Definitions and links between NPL and impaired loans not always clearly disclosed More than half of the sample mentioned and defined the term forbearance practices Provide clear and transparent disclosure on past due or impaired assets Provide unambiguous disclosure on the accounting policy of impairment assessment Provide more granular information on forborne financial assets Use common definition of forbearance and NPLs set out by EBA 13

14 Impairment of equity securities classified as AFS Quantitative disclosures 20% did not disclose any accounting policy on impairment for a potentially material portfolio or didn t use the term significant or prolonged in accordance with IFRS or used it in ambiguous manner 50% did not disclose the percentage criteria or the time period criteria but half of these financial institutions might justify this by the materiality considerations 33 % of those who described their judgement about criteria used a two-step approach 20 % disclosed the amount of accumulated positive and negative AFS reserve related to AFS equity instruments Disclose specific criteria used in applying judgement as stated by July 2009 IFRIC Update ESMA encourages to disclose the amount of positive and negative AFS reserve 14

15 Questions? Thank you! 15