Issuers subject to the Transparency Law: look out for the CSSF's enforcement priorities for 2024 annual reports

On 24 October 2024 and as in previous years, the European Securities and Markets Authority (the “ESMA”) launched a public statement identifying the European Common Enforcement Priorities (the “ECEPs”) for 2024 annual financial reports of issuers admitted to trading on European Economic Area (the “EEA”) regulated markets[1]. The ESMA presented the ECEPs, which included priorities related to IFRS financial statements, sustainability statements and European Single Electronic Format (the “ESEF”) reporting.
The ESMA reminded issuers and their auditors to consider the following topics, namely;

• ECEPs related to IFRS financial statements;
  • Liquidity considerations; and
  • Accounting policies, judgements and significant estimates.
• ECEPs related to sustainability report;
  • Materiality considerations in reporting under ESRS; and
  • Scope and structure of the sustainability report.
• ECEPs related to ESEF reporting;
  • Common markup errors.
     

Please find the full text of ESMA’s public statement on the 2024 ECEPs available on https://www.esma.europa.eu/document/european-common-enforcement-priorities-2024-corporate-reporting.

Issuers preparing their reporting for the 2024 financial year in accordance with the requirements set out in the Transparency Law must consider these ECEPs as well as the below CSSF specific point of focus deriving from said ECEPs.

1. IFRS financial statements

Issuers need to pay attention to the following when preparing their 2024 IFRS financial statements.

1.1. Priority 1: Liquidity considerations

It is crucial for issuers to provide transparent liquidity risk disclosures to allow investors to assess issuers’ ability to meet their short-term obligations and issuers’ potential risk factors. This is even more important for investors to understand issuers’ financial resilience during periods of market volatility and economic uncertainty.

Covenants

Issuers may have difficulties to prove compliance with some debt covenants in loan agreements given the current inflationary trends and fluctuating interests rates.

Considering that, the CSSF outlines that issuers are expected to consider the recent clarifications and additional disclosure requirements under IAS 1 Presentation of Financial Statements regarding non-current liabilities subject to covenants, as well as the disclosure obligations under IFRS 7 Financial Instruments: Disclosures for loans payable, particularly in case of defaults, breaches, or renegotiations of loan agreements.

Finally, any liabilities subject to breached covenants as of the year-end must be reclassified as current, even if a waiver is obtained after the reporting period.

Statement of Cash flows (“SoCF”)

The CSSF encountered cases of non-compliance concerning certain requirements related to the SoCF, and further urges issuers to maintain a high level of transparency regarding the accounting policies and judgments applied when classifying cash flows and the components of cash and cash equivalents.

1.2. Priority 2: Accounting policies, judgments, significant estimates

Clear information on accounting policies and estimates is essential.

Cross-cutting requirements

Issuers are reminded to customise their disclosures of material accounting policies, judgments and sources of estimations uncertainty to ensure those are (i) only related to the accounts policies and valuation methods they use and (ii) consistent with other information included in the financial statements. Disclosures that merely restate IFRS requirements should be avoided.

It is also expected for the issuers to clearly disclose (i) the key judgments significantly impacting the amounts recognised in the financial statements and (ii) the assumptions about the future and other major sources of estimation uncertainty carrying a significant risk on the amount of assets and liabilities within the next financial year.

Going concern

Financial statements must include an assessment on the issuers’ ability to continue as a going concern and disclose any material uncertainties that may cast significant doubt on this ability.

Depending on the circumstances, the CSSF may expect the issuers to provide a thorough analysis including detailed and entity-specific disclosures to justify this going concern assumption.

Control, joint control and significant influence

The CSSF also requires customised disclosures when assessing control, joint control or significant influence, in order to determine whether such exercised control, including joint control or significant influence may involve substantial judgment.

Provisions

The CSSF further emphasises that the accounting of provisions often involves significant judgment and estimation uncertainty, particularly in the case a provision is not recognised or a reliable estimate of the obligation cannot be made, and that, consequently, issuers may be expected to provide appropriate disclosures.

Moreover, particular attention must be paid on the recent IFRS Interpretation Committee (IFRS IC) agenda decision on climate-related commitments[2] which may affect the accounting for provisions.

2. Sustainability report

2.1. Priority 1: Materiality considerations in reporting under ESRS

Considering both impact materiality and financial materiality when determining the information to be disclosed in the sustainability report is fundamental in order to ensure that companies evaluate the broader societal and environmental impacts of their activities (and not only the financial impact of sustainability-related matters on their performance).

The CSSF further stresses that the disclosure should provide information on the activities, business relationships, geographies and stakeholders considered to ensure full transparency on how issuers identify and prioritise the stakeholders with which they engage.

2.2. Priority 2: Scope and structure of the sustainability report

The scope of the sustainability disclosures must cover the same reporting entity as the financial statements and should also extend to the issuer’s entire value chain.

As a reminder, the structure of the sustainability report is outlined in Section 8 and Appendix D of the ESRS 1[3].

The CSSF also highlights that consistency and transparency across the sustainability report and the financial statements must be ensured.

3. ESEF reporting

3.1. Priority: Common markup errors

Finally, when examining the 2024 annual financial reports subject to ESEF requirements, the CSSF will focus on, inter alia, common ESEF markup errors affecting the issuer’s statements of financial position (such as, for example, in the field of correctness of mark-ups, extension of taxonomy elements and anchoring, consistency and completeness of mark-ups, correctness of signs, scaling and accuracy and consistency of calculations). 

For further information, please read the fullest CSSF publication available on https://www.cssf.lu/en/

Please contact the members of our Banking & Capital Markets team should you need any assistance.