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As a result of recent sovereign debt developments and the increased market interest in this area, there has been a lot of focus on the accounting practices of listed companies, and financial institutions in particular, with respect to their exposures to sovereign debt.
On 28 July 2011, ESMA issued a statement stressing the need for enhanced transparency and the importance of applying the relevant International Financial Reporting Standards (IFRS). ESMA also encouraged issuers to provide information on their exposures to sovereign debt on a country-by-country basis in their financial statements.
Since then ESMA conducted together with national competent authorities a fact-finding exercise on the accounting treatment of Greek sovereign debt in the half-year financial statements based on a sample of financial institutions listed in EU regulated markets.
The consistent application of IFRS, which covers standards for recognition, measurement and disclosure, is important for the proper functioning of financial markets. ESMA publishes this statement to promote consistent application of European legislation, and notably of IFRS. It contains two sections:
- Section 1 discusses accounting issues related to sovereign debt in IFRS annual financial statements ending 31 of December 2011. The section highlights elements that should be considered by issuers and their auditors in relation to exposure to sovereign debt when preparing their financial statements for the upcoming year-end.
- Section 2 is an ESMA Opinion “Accounting for Exposure to Greek Sovereign Debt – Considerations with respect to IFRS Interim Financial Statements for Accounting Periods ended on 30 June 2011. The Opinion provides a summary of the outcome of the fact-finding exercise together with elements that should have been considered by issuers and their auditors as part of the IFRS interim financial statements for periods ended 30 June 2011.
Though ESMA cannot predict market developments and how the facts and circumstances relevant for financial reporting will look at the end of the year, ESMA believes that the Opinion contains elements that are relevant for issuers and their auditors to consider – together with the other elements presented in this Public Statement – when preparing or auditing the financial statements for the upcoming year end.
Please click here to download the full statement.
