The European Securities and Markets Authority last week released the European common enforcement priorities for 2014, which will guide not just ESMA but national financial regulators in their reviews of listed companies’ financial statements.

The priorities fall into three categories – preparation and presentation of consolidated financial statements and related disclosures; financial reporting by entities with joint arrangements and related disclosures; and recognition and measurement of deferred tax assets.

The goal of the common enforcement priorities is to provide harmonization in enforcement and a consistent application of the International Financial Reporting Standards throughout the EU, said Steven Maijoor, chairman of ESMA.

ESMA said those three areas were selected because they represent significant changes to accounting practices due to new rules, or because the current economic climate creates particular challenges in applying specific IFRS requirements, such as forecasting future taxable profits during slow growth periods.

“In view of the impact of new standards on financial information, ESMA believes that listed companies and their auditors should pay particular attention in the areas of consolidated financial statements, joint arrangements and valuation of deferred tax assets when preparing and auditing their 2014 IFRS financial statements,” Maijoor said in a statement. “This will contribute to ensuring the relevance and reliability of financial information provided to investors, and ultimately contributes to the proper functioning of Europe’s capital markets.”

The public statement on the enforcement priorities also mentioned two additional areas for companies to keep in mind when preparing 2014 financial statements. First, ESMA said the authority along with its national counterparts will expect listed banks to provide relevant information relating to material impacts stemming from the recent comprehensive assessment of the banking sector, conducted by the European Central Bank, as well as any changes in the amount of regulatory capital required. Secondly, ESMA said it will again consider the findings included in its 2013 report on the comparability of financial statements of financial institutions highly relevant for the 2014 reports.

ESMA also is encouraging listed firms to provide entity-specific disclosures relating to their performance and financial situation at the end of the reporting period. “ESMA believes that the early involvement and commitment of senior management in this respect is vital to ensure that listed companies give relevant and reliable information to investors,” the statement from ESMA said.

ESMA said it will collect data on how well listed firms applied the priorities and release the results in early 2016. National enforcers will take corrective action when material misstatements are found, ESMA said.

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