ESMA issues a Public Statement regarding implications of the COVID-19 outbreak on half-yearly financial reports

The European Securities and Markets Authority (ESMA) has issued a public statement to promote transparency and consistency in the information provided in half-yearly financial reports under the present circumstances (the “Statement”).

In particular, the Statement seeks to address the preparation of the interim financial statements according to IFRS and the interim management reports for the 2020 half-yearly reporting periods. Issuers, financial advisors and anyone involved in the preparation of half-yearly financial reports would, therefore, do well to get familiar with the Statement.

Primarily, the Statement highlights the need for issuers to provide updated information that is useful to investors to adequately reflect the current and expected impact of the COVID-19 situation on the financial position, performance, and cash-flows of issuers. ESMA also highlights the importance of providing information on the identification of the principal risks and uncertainties to which issuers are exposed. The considerations in the Statement are also applicable to the reporting of financial information in other interim periods to which IAS 34 Interim Financial Reporting is applied.

Given the complexities of the current environment, ESMA has also encouraged audit committees to enhance their oversight role which is key to contribute to high-quality half-yearly financial reports.

Timing of publication of half-yearly financial reports 2020

ESMA has acknowledged that some issuers may consider delaying the publication of their half-yearly financial reports.

In this regard, issuers are reminded of the MFSA’s circular dated 17 April 2020 wherein it informed the market that the Listing Authority has decided to temporarily suspend its policy to automatically suspend trading of securities when issuers fail to publish their annual and half-yearly reports within the stipulated deadlines (annual reports – 4 months from the end of the financial year, in terms of Listing Rule 5.56; and half yearly reports – 2 months from the end of the first 6 months of each financial year, in terms of Listing Rule 5.85). Maltese issuers who delay publication of their half-yearly financial reports have, however, been asked to publish a Company Announcement in order to (a) inform the market about the delay, (b) highlight the reasons for the delay, and (c) disclose the estimated publication date of the financial reports. Issuers are also obliged to inform the MFSA about the delay.

Preparation of half-yearly financial statements

In its Statement, ESMA also remarked about the preparation and contents of half-yearly financial statements, namely on the application of IAS 34, the disclosures reflecting significant uncertainties, going concern and risks linked to COVID-19, impairment of non-financial assets, the presentation of COVID-19 related items in the statement of profit or loss, as well as other disclosure requirements applicable to half-yearly financial statements.

ESMA also reminded issuers to carefully consider the impact on their financial statements of any material events occurring after the end of the reporting period and to provide the relevant disclosures in accordance with paragraph 16A(h) of IAS 34.

Interim management reports

Finally, ESMA recommended that issuers provide detailed and entity-specific information in their interim management reports regarding:

(a) the impact that the COVID-19 pandemic had on their strategic orientation and targets, operations, financial performance, financial position and cash-flows (in particular, details of the issuer’s liquidity position and its liquidity risk management strategy, decrease of revenues, disruptions in supply chains and/or production);

(b) measures taken by issuers to address and mitigate the impacts of the COVID-19 pandemic on their operations and performance and their progress/state of completion (including, but not limited to, information of whether issuers have applied or are considering to apply for public support measures, details regarding the nature, amounts and conditions of such assistance, the planned renegotiation of major contracts); and

(c) where available, the expected future impact on issuers’ financial performance, financial position and cash-flows, related risks, and contingency measures planned to mitigate the expected future impact and risk and uncertainties identified.