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BREXIT: ESMA urges companies to disclose potential Brexit impact

Listed companies should disclose the potential impact of Brexit in their financial statements, the European Securities and Markets Authority (ESMA) has said.01 Nov 2016

In its annual statement on European common enforcement priorities, which identifies enforcement priorities for listed companies’ financial statements, ESMA "urges issuers potentially affected by the result of the UK's referendum to leave the UK to assess and disclose the associated risks and expected impacts it may have".

ESMA's call for disclosure follows a similar request from the Financial Reporting Council, which said in October that "in light of the referendum vote in favour of the UK leaving the EU, companies will need to consider the consequential risks and uncertainties in the political and economic environment and the impacts of those risks and uncertainties on their business. Not all businesses will be affected to the same extent."

ESMA also stressed the need for clear, high-quality information on financial performance, and asked companies to make a clear distinction between equity instruments and financial liabilities.

It noted that there are cases where it is difficult to distinguish between equity and liability, but said the general principle for distinguishing liabilities from equity "is whether the entity has an unconditional right to avoid delivering cash or another financial asset to settle the contractual obligation". 

Some aspects of the new International Financial Reporting Standards (IFRS9), which come into force at the start of 2018, will bring significant changes and issuers should start preparing for this now, ESMA said.

A recent survey by Deloitte found that nearly half of big banks have they will not be able to meet the deadline for IFRS9

According to the poll of 91 banks, 46% do not consider that they have the resources needed to make the changes in time, and two thirds do not know how the change will affect their balance sheets, Deloitte said in its sixth global IFRS banking survey report.

IFRS 9 was issued by the London-based International Accounting Standards Board and forms part of the body’s response to the global financial crisis. It will require firms to account for expected credit losses at the point that they first recognise financial instruments, and to recognise full lifetime expected losses at an earlier stage.

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