ESMA Statement on disclosures related to sovereign debt to be included in IFRS financial statements

According to European Regulation no 1095/2010 establishing the European Securities and Markets Authority (“ESMA”), ESMA shall act in the field of financial reporting, to ensure the effective and consistent application of European Securities and Markets legislation.

As a result of recently increased market interest in sovereign debt[1], ESMA has increased its coordination of the monitoring activities of competent authorities in response to the specific market circumstances and developments in this area.

Consequently, ESMA would like to stress the need for enhanced transparency in European listed issuers’ interim and annual financial statements using International Financial Reporting Standards (IFRSs)[2]. In doing this, ESMA would point out that IFRSs are issued by the International Accounting Standards Board, and the IFRS Interpretations Committee provides the authoritative guidance on the interpretation of IFRSs. Consequently this statement should not be understood as constituting guidance or recommendations on IFRS, but rather as assisting issuers in preparing disclosures on sovereign debt.

ESMA underlines that an appropriate application of relevant IFRS is essential in order to ensure adequate disclosures by listed companies of their exposures to sovereign debt and related instruments. ESMA considers that, when material, disclosures should be provided country by country.

Whilst ESMA acknowledges that reporting requirements for interim financial statements prepared under IFRS are not the same as for annual financial statements, ESMA believes that the IFRSs that most closely address those issues related to holdings of sovereign debts as financial assets, within the scope of this document, for all financial statements are: IFRS 7 – Financial instruments: Disclosures, IAS 1 – Presentation of Financial Statements, IAS 34 – Interim financial reporting and IAS 10 – Events after the Reporting Period. Without constituting an exhaustive list, particular attention should be given to the IFRS provisions mentioned in the Appendix to this Statement.

ESMA would like to encourage all issuers to provide any additional information that might be relevant to investors’ understanding of the financial information. For example, an entity might consider including or making reference in its financial reporting to any disclosures made in relation to stress testing on exposures to sovereign debt performed by the issuer or a third party organisation.

ESMA will continue to coordinate competent authorities’ monitoring of the application of the relevant requirements by listed issuers with respect to sovereign debt exposures in order to ensure an adequate level of transparency.

The whole Public statement can be found on the following link: http://www.esma.europa.eu/popup2.php?id=7685