As many within the accounting and corporate services may be aware, the European Securities and Markets Authority has recently released its Enforcement Report for 2023. This report provides an overview of the activities of ESMA and of national enforcers within the European Economic Area from the 1st Jan – 31st Dec 2023, when examining compliance and auditing of financial and non-financial information provided by issuers. It also presents the main activities contributing to supervisory convergence performed at European level.
The document is a report on the enforcement and regulatory activities related to corporate reporting in 2023, including financial reporting, non-financial reporting, and European Single Electronic Format (ESEF) reporting. It aims to improve future reports by assessing compliance with IFRS and non-financial reporting obligations. The report focuses on listed issuers and promotes transparency and accountability in the market.
From the report, a number of notable results were highlighted. Enforcers undertook 703 examinations of issuers' financial statements prepared in accordance with IFRS, with an examination rate of 17%. The action rate for IFRS examinations remained stable at 37%, with 250 actions taken. Meanwhile, most infringements were identified in the areas of accounting for financial instruments, impairment of non-financial assets, presentation of financial statements, and revenue recognition.
The report continues to give a description of ESMA's activities in enforcing financial reporting standards, including the main focus on IFRS reporting and alternative performance measures. It also highlights the coordination of enforcement decisions and the assessment of compliance with ESMA's 2022 European Common Enforcement Priorities (ECEP). An approximate 4,000 issuers preparing IFRS financial statements were admitted to trading on regulated markets in the EU in 2023. Compliance with ESMA's 2022 ECEP was generally satisfactory, with some areas for improvement identified.
The report goes on to cover the new requirements introduced by the Corporate Sustainability Reporting Directive (CSRD) and the Taxonomy Regulation, as well as the number of issuers publishing non-financial reports, how non-financial reporting is enforced, and the legislative context and coordination of enforcement. Approximately 2,300 listed issuers were within the scope of enforcement activities for assessing non-financial statements, and enforcers undertook 515 examinations of non-financial statements in 2023, leading to enforcement actions for 23% of issuers. The fact-finding exercise on Article 8 of the Taxonomy Regulation highlighted the need for improvements in reporting.
The legislative context of the European Single Electronic Format (ESEF) and the coordination activities carried out by the ESEF Project Team was also outlined, covering the requirements for issuers to publish their annual financial reports in XHTML and XBRL formats, the coordination of enforcement activities, and the collection of data on examinations and actions taken by enforcers. The Transparency Directive mandated ESMA to develop regulatory technical standards, and enforcers performed high-level examinations of financial statements for 3,277 issuers.