ESMA has issued a Public Statement on the application of IFRS 9 in the exceptional circumstances caused by the pandemic

On 25 March, the European Securities and Markets Authority (ESMA) issued a public statement on the calculation of expected credit losses in accordance with IFRS 9 Financial Instruments in the exceptional circumstances caused by the pandemic. The content of the statement is of particular importance in credit institutions’ financial reporting, but the content and guidance involved also apply in general to IFRS reporting by other companies. In ESMA’s view, the principles-based nature of IFRS 9 includes sufficient flexibility to faithfully reflect the prevailing exceptional circumstances in reporting.

The statement includes observations concerning the assessment of a significant increase in credit risk and the assessment of expected credit losses. In the assessment, attention should be paid to the exceptional temporary circumstances and their impacts on expected credit losses in an environment where forward-looking information is not reliable or available.

In addition, the statement draws attention to transparency. ESMA is of the view that companies should provide any additional information in financial reporting for investors to understand the overall impact of the pandemic on the financial position and performance of the company. This is particularly important for areas in which IFRS require that significant judgement is applied.

The IASB has published guidance on the application of IFRS 9 at its website.

The FIN-FSA also points attention to the following releases discussing financial reporting:

• FIN-FSA’s news letter on 18 March 2020 on a recommendation issued by ESMA. The ESMA recommendation contains observations on financial reporting. Financial reports should provide transparency on the actual and potential impacts of the pandemic on the business activities and financial position of the company. (pdf)
• FIN-FSA’s news release on 27 March 2020 on ESMA's statement on the application of deadlines under the Transparency Directive
• Statement of the Committee of European Audit Oversight Bodies (CEAOB) on areas of high importance for auditors’ work during the pandemic. (pdf)
• FIN-FSA’s supervision release on 26 March 2020 to credit institutions: EBA and ESMA to clarify the prudential framework, IFRS 9 and consumer protection due to the coronavirus epidemic

For more information please contact

Tiina Visakorpi, Head of Division, tiina.visakorpi(at)fiva.fi or tel. +358 400 606 734