ESMA’s key focus for 2014 financial statements

The European Securities and Markets Authority (ESMA) has published the European Common Enforcement Priorities 2014 that represent the key focus for examinations of the financial statements of listed companies by ESMA and European national enforcers. Which of the following is not deemed to be a priority for 2014

Fair value accounting by entities

Preparation and presentation of consolidated financial statements and related disclosures

Recognition and measurement of deferred tax assets

Financial reporting by entities which have joint arrangements and related disclosures

The enforcement priorities were identified as a result of discussions with European national enforcers with a view to further increasing transparency in financial reports. What was the main reason behind the current topics being chosen as the enforcement priorities?

Issuers recommendations of potential issues faced

Because of significant changes to accounting practices as a result of new standards

ESMA 2013 report on institutions

The lack of challenges faced by issuers as a result of the improving economic environment

ESMA defines the European common enforcement priorities in order to promote consistent application of the International Financial Reporting Standards (IFRS). What does ESMA feel is a continuing problem with financial statements?

Disclosure is often left up to the subjective judgement of management

Materiality of items is often assessed incorrectly

Financial statements are cluttered with excessive disclosure

Financial statements refer to relevant transactions but not in enough detail

Control is defined as the situation when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Where are the principles relating to control are set out?

IFRS 10 and the application guidance

IFRS 10

IFRS 12

IFRS11

IFRS 12 requires disclosures to enable users to understand the nature of the non controlling interests (NCI) in the group activities and cash flows. There is an expectation that disclosures will be sufficient which includes disclosure of the operating segments material NCIs have been allocated to. Which of the following is not a recommendation by ESMA re disclosure priorities?

The importance of the materiality assessment is stressed by ESMA

Issuers should disclose the nature and extent of any significant contractual or statutory restrictions

The amount of significant cash and cash equivalent balances held by the entity that have been pledged for future reconstruction

When a group presents a significant amount of NCIs but none of are individually significant, ESMA says issuers should disclose this fact

ESMA draws the attention of the issuer to specific disclosure requirements with respect to the nature of, and changes in, the risks associated with their interests in consolidated and unconsolidated structured entities. What is the definition in IFRS 12 regarding a structured entity?

When voting rights relate to management tasks and the relevant activities are directed by contractual arrangements

When voting rights relate to administrative tasks and the relevant activities are directed by non contractual arrangements

One that has been set up so that any voting rights or similar rights are the dominant factor in deciding who controls the entity

One that has been set up so that any voting rights or similar rights are not the dominant factor in deciding who controls the entity

Which of the following features is not one of a structured entity -

Narrow and well defined objective

Insufficient equity to permit the structured entity to finance its activities without subordinated financial support

Unrestricted activities

Financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks

IFRS 11 sets out criteria which determines the classification of joint arrangements as either joint operations or joint ventures. What is the general basis of the classification of joint arrangements as joint operations or joint ventures?

Only the other facts and circumstances

The legal form

The consistency of classification with other entities with similar characteristics

The rights and obligations of the parties to the arrangement

The first-time adoption of IFRS 10 and IFRS 11 might change the assessment as to how to account for an investee. Which of the following circumstances is not the cause of a potential policy change brought about by IFRS10 or IFRS11?

A different conclusion may be reached over whether control is achieved by an investor holding less than a majority of voting rights in an investee

IFRS 10 introduces an exception to the consolidation requirement for investment entities

The previous use of proportionate consolidation is outlawed by IFRS 11

IFRS 10 changes the requirement regarding impairment of goodwill

The current economic climate could result in the recognition of tax losses or the existence of deductible temporary differences where perhaps impairments are not yet deductible for tax purposes. Under what circumstances can a deferred tax asset be recognised under IAS 12?

The probability that future taxable profit will be available to utilise the unused tax losses need not be reviewed

IAS 12 states that the existence of unused tax losses is strong evidence a deferred tax asset is available

Recognition of deferred tax assets is not conditional upon the existence of convincing evidence of recovery of the tax losses

IAS 12 Income Taxes limits the recognition of a deferred tax asset to the extent that it is probable that future taxable profits will be available against which the deductible temporary difference can be utilised

ESMA’s key focus for 2014 financial statements

The enforcement priorities were identified as a result of discussions with European national enforcers with a view to further increasing transparency in financial reports. What was the main reason behind the current topics being chosen as the enforcement priorities?

ESMA defines the European common enforcement priorities in order to promote consistent application of the International Financial Reporting Standards (IFRS). What does ESMA feel is a continuing problem with financial statements?

Control is defined as the situation when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Where are the principles relating to control are set out?

ESMA draws the attention of the issuer to specific disclosure requirements with respect to the nature of, and changes in, the risks associated with their interests in consolidated and unconsolidated structured entities. What is the definition in IFRS 12 regarding a structured entity?

Which of the following features is not one of a structured entity -

IFRS 11 sets out criteria which determines the classification of joint arrangements as either joint operations or joint ventures. What is the general basis of the classification of joint arrangements as joint operations or joint ventures?

The first-time adoption of IFRS 10 and IFRS 11 might change the assessment as to how to account for an investee. Which of the following circumstances is not the cause of a potential policy change brought about by IFRS10 or IFRS11?

The current economic climate could result in the recognition of tax losses or the existence of deductible temporary differences where perhaps impairments are not yet deductible for tax purposes. Under what circumstances can a deferred tax asset be recognised under IAS 12?

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