ESMA statement on quality of disclosures in financial statements
The European Securities and Markets Authority is calling for an improvement in the quality of disclosures in financial statements. It highlights the following principles:
- Being specific: Issuers should focus on “entity-specific” disclosures and avoid boilerplate language;
- Providing relevant information in an easily accessible way: relevant information for these purposes is information that is necessary to understand the issuer’s financial performance and position and that could influence an investor’s economic decisions;
- Thinking about materiality: issuers should review disclosures in financial statements that are no longer relevant, remove elements that are no longer required and consider deleting immaterial information;
- Promoting readability: The most relevant information should not be obscured by a large amount of less relevant information. Cross references should be used where possible and the layout of financial statements modified to improve conciseness and clarity;
- Ensuring consistency: Information provided in financial statements and accompanying documents (such as the management report) should be consistent.
ESMA is encouraging all parties involved in preparing financial statements to contribute to improving the quality of disclosures. Auditors should encourage issuers to focus on materiality and entity-specific information and European national enforcers should promote best practice and reflect on their enforcement practices in light of the statement.
ESMA’s statement can be found here.