These priorities are set out in its annual public statement on enforcement priorities. ESMA says as well as the focus on the new standards, enforcers will be looking at how companies deal with disclosure on the implementation and expected impact of IFRS 16 Leases coming into force in 2019.

In addition, the statement highlights the requirements to disclose non-financial information, with a focus on environmental and climate-change related matters, and specific aspects of ESMA’s guidelines on alternative performance measures (APMs).

As regards the application of IFRS 15, ESMA wants issuers to look at identification and satisfaction of performance obligations, disaggregation of revenue and the disclosure of significant judgements related to recognition of revenue.  For credit institutions, ESMA highlights the application of the new expected credit loss model (ECL) and, in particular, careful consideration and disclosure of significant inputs used in the assessment of a significant increase of credit risk and in the determination of ECL.

ESMA says the publication of financial statements will happen after the entry into effect of IFRS 16 and all issuers should be in a position to disclose the expected impact. Issuers that will be significantly impacted are also encouraged to consider what information would enable analysts and other users to update their models.

Steven Maijoor, ESMA chair, said: ‘This year’s enforcement priorities focus on the new standards that are applied for the first time in annual financial statements: IFRS 15 and IFRS 9.

‘These standards have introduced significant changes for the financial statements of many issuers, and ESMA expects them to provide sufficient level of transparency on the application of the new standards. In particular, issuers should focus on the application and recognised impact of the new accounting models for revenue recognition and for impairment of financial assets.

‘Non-financial reporting, most notably on environmental matters, is gaining momentum in Europe, as part of a broader EU initiative to achieve a more sustainable financial system. To serve this purpose investors and the public need high-quality disclosures.’

ESMA is also highlighting the importance of disclosures analysing the possible impacts of the UK’s decision to leave the EU.

ESMA will collect data on how European listed entities have applied the priorities and will report on findings regarding these priorities in its Report on the 2019 enforcement activities.

European common enforcement priorities for 2018 annual financial reports is here

Report by Pat Sweet