The European Securities and Markets Authority (ESMA) is calling on financial institutions to improve the quality of financial statement disclosures reported under International Financial Reporting Standards (IFRS) to improve transparency and the information available to key stakeholders.

The ESMA review makes recommendations aimed at enhancing the transparency of financial statements by improving the quality of disclosures in key areas, including credit risk and impact of forbearance practices; liquidity and funding risk; asset encumbrance and fair value measurement of financial instruments.

Although the required disclosures under IFRS are generally observed, ESMA identified broad variations in the quality of the information provided, and also instances where there was insufficient data to allow comparability among financial institutions.

Steven Maijoor, ESMA chair, said: 'ESMA has identified a number of areas where financial institutions can improve the information that they provide in their financial statements, particularly on issues such as credit risk and forbearance.

'We expect that financial institutions and their auditors will take into account our recommendations when preparing and auditing the IFRS financial statements for 2013.'

The review was based on a sample of 39 large European financial institutions from 16 jurisdictions, focusing primarily on banks, most of which will move under the European Central Bank supervisory framework in 2014.

ESMA highlighted a number of weaknesses, including disclosures that were not specific enough and lacked links between quantitative and narrative information, or disclosures that could not be reconciled to the primary financial statements. In particular, it is often difficult to compare the income statements of the financial institutions, due to differences in their structure, the line items content and lack of comprehensive accounting policy disclosures.

Moving forward, ESMA will advise the International Accounting Standards Board (IASB) on areas where it believes additional IFRS guidance could improve the quality and transparency of financial statements.

The ESMA report is available HERE