Financial Reporting 2021


Financial Reporting – The Supervisors’ Priorities

Financial Reporting Brief: December 2021

The sands continue to shift as to how companies report and to whom. The legal obligations to shareholders under the Companies Act and, in many cases, the financial obligations owed to bankers and others as a condition of financing arrangements continue to be in place. The demands on corporate reporting increasingly extend to embrace the broader commercial and societal duties owed to a wide range of stakeholders.

In these troubled times there is a growing need for companies, and all entities, to go beyond the parameters of legal and accounting standard requirements to do everything possible to provide information to support investment and commercial decision making.

The demand continues to grow from investors and others for more robust non-financial information with sustainability being high on the agenda for all entities and climate change never being far from the news as to both calamitous events and what can we all do to curtail its worst impacts going forward. In the past year, there has been a series of significant developments in this whole area and action is being taken to develop sustainability reporting, integrate it with financial reporting and come up with a comprehensive corporate reporting model that will respond to needs and demands. Financial Reporting Brief (FRB) shall comment on the more recent developments early in 2022.

Critical to the proper functioning of orderly financial markets is the role played by those Bodies responsible for their supervision, which at European level is the European Securities and Markets Authority (ESMA). It has 3 objectives:

  • Investor protection - to make sure that financial consumers' needs are better served and to strengthen their rights as investors, while also acknowledging their responsibilities;
  • Orderly markets - to promote the integrity, transparency, efficiency and proper functioning of financial markets and robust market infrastructure; and
  • Financial stability - to strengthen the financial system so it can withstand shocks and the unravelling of financial imbalances, and to encourage economic growth.

The importance of its role is clear in these challenging times.

ESMA operates through a network of National Enforcement Authorities, including in Ireland the Irish Auditing and Accounting Supervisory Authority (IAASA). The UK Financial Reporting Council (FRC) was a part of the network until the UK left the EU; it continues its supervisory functions on a similar basis.

In 2021, all three continued their annual practice of publishing reports to express their views and recommendations on key areas of reporting. All issuers have a responsibility to become familiar with the reports in their efforts to provide quality, reliable reporting. The consequences of not doing so could expose them to the rigours of enforcement measures which are available to the Authorities at a national level. To achieve best practice standards, all entities will benefit from becoming familiar with the reports.


European Common Enforcement Priorities

It is of no surprise that the two areas highlighted most in the ESMA Public Statement on European Common Enforcement Priorities, published in October, are Covid-19 and Climate Change. Much has been written on both these areas in our FRB series during the year, and what follows is just brief additional comment based on the ESMA statement.


With the anticipation of economic recovery and future growth improving for many companies, albeit dulled by the current escalation in case and hospital numbers, ESMA calls for careful assessment by issuers of the broader and potentially longer-term impact of the pandemic, drawing particular attention to:

  • Disclosure of information on the judgements, estimates and assumptions that were updated as a result of any recent changes in their economic and financial situation together with the basis for those changes;
  • Assessment and disclosure of any material uncertainties that exist related to events or conditions that may cast significant doubt upon the issuers’ ability to continue as a going concern and, if relevant, looking beyond the twelve-month period after the reporting period required by standards;
  • The reversal of impairment provisions recognised in previous periods needs to be assessed carefully. An impairment loss recognised in prior periods for an asset other than goodwill should be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the period in which the last impairment loss was recognised;
  • Disclosure of the criteria and assumptions used in the recognition of deferred tax assets arising from the carry forward of unused tax losses and unused tax credits due to the Covid-19 pandemic;
  • Transparency on how the consequences of the pandemic are affecting plans to meet sustainability targets and whether any new or adjusted goals have been determined, together with disclosures on how they foresee the development of their business in response to the changing conditions arising from the pandemic, including any structural changes to the way they conduct their business (e.g. re-structuring of supply chains and distribution channels).


Climate Change

ESMA notes that typically the identification and assessment of climate-related risks may require consideration of a longer-term horizon than the one generally considered for financial risks. In this respect, ESMA notes:

  • Investors are increasingly interested in information regarding the impacts that climate-related matters may have on issuers as well as in information on the issuers’ impacts on the mitigation of the effects of climate-related matters;
  • Issuers should consider climate-related matters holistically in their communications to the market by ensuring consistency in the information disclosed across the management report, the non-financial reports and the financial statements. Several IFRS Standards require issuers to consider the effects of climate-related matters when these are material;
  • Issuers, in particular those belonging to the most affected sectors, need to consider disclosure of management judgements related to climate risks, including sensitivity analysis, and major sources of estimation uncertainty that have a significant risk of resulting in a material adjustment to the carrying amount of assets and liabilities within the next financial year; and
  • There needs to be disclosure of which policies, if any, issuers have put in place to address climate change, both in terms of any identified risks and opportunities that climate-related matters may give rise to for the undertakings’ activities as well as on the impact (positive or negative) that the undertaking’s actions may have on such matters.

Other matters that are highlighted for attention in the ESMA report include:

  • Disclosure by credit institutions of expected credit losses;
  • Alternative performance measures;
  • European Single Electronic Format – which applies to annual financial statements from 2021 onwards of issuers regulated on EU markets.


Other Supervisors’ Reports

Both IAASA and the FRC also include significant comment in their reports on both Covid-19 and Climate Change and expectations of how issuers deal with these predominant matters. Both place great emphasis on the importance of entity-specific disclosure in relation to key judgements, estimates, assumptions and any other particularly sensitive aspects of the financial statements. Companies need to avoid ‘boiler plate’ disclosure.

The IAASA report draws particular attention to the different challenges that emerge as trading conditions normalise, and government supports are removed. The viability of individual businesses and jobs will become clearer, as we see changes in consumer and investor preferences and behaviour, alternative work, supply chain and migration patterns, increased digitalisation, and ongoing adjustment to the new trading arrangements between the EU and the UK.

The FRC in its report draws attention to its ‘top ten' areas where improvements are required. In the main, these are consistent with previous years with some of particular concern including:

  • Revenue – its ranking has increased significantly - with particular focus on (1) the methods of estimation of variable consideration, (2) performance obligations and the timing of recognition, (3) principal vs agent considerations, and (4) contract balances.
  • Cash flow statements - the quality of reporting remains of significant concern, demonstrating an absence of robust pre-issuance review procedures. In the context of cash and liquidity, other areas that require careful consideration include supplier finance arrangements and compliance with banking covenants.


The Five Ps

Deloitte has recently published its report ‘From Surviving to Thriving – Annual Report Insights 2021’ which is based on a detailed review of the most recent annual reports of 50 companies that are included in the FTSE 350, each of which have more than 500 employees and together represent a wide range of industries.

The report examines reporting trends in the context of five different areas - purpose, people, planet, prosperity, and of course a fifth "P" that has been greatly affecting business - the pandemic – the Five Ps. By comparison with the previous year annual reports, there is evidence of some improvement in reporting standards.

Purpose – 86% clearly stated their purpose upfront, up from 78% last year;

People – 84% described action taken throughout the business to improve ethnicity (only 44% described this for the board);

Planet – all companies mentioned climate change with 84% displaying clear board oversight, up from 62%;

Prosperity – 84% discussed continuity or resilience of the business model;

Pandemic – 96% discussed employee considerations.

The above is just a small selection of metrics included in the report as to areas where companies have performed well. There remain numerous areas where there is considerable room for improvement.

The report includes a wide range of recommendations, providing deep insights into where companies can further enhance their reporting. Just a small selection of these are as follows:

  • Given the global trajectory towards mandatory ESG reporting, enhance business capacity to measure, manage and report on ESG matters and consider how these capabilities will be embedded across all aspects of the business, particularly regarding governance, strategy, risks and opportunities, and metrics and targets;
  • Investors and regulators expect companies to explain clearly the financial implications of climate change risks and opportunities and their impact on the companies’ strategic choices and business plans, both in the narrative of the annual report, and in the financial statements. The disclosure needs to be sufficiently specific and granular to be decision-useful and the message should be consistent between the front and back halves of the report;
  • Explain clearly the future prospects and the resilience of your company and its activities. Describe how the board has evaluated and concluded on going concern and viability, describing the methods, judgements and assumptions underlying the analysis;
  • Diversity and inclusion is high on the investor, government and regulator priority lists; is it part of the company’s strategic priorities and are the metrics and targets used for accountability disclosed;
  • Bring credibility and authenticity to disclosures about stakeholder engagement in the wake of Covid-19, particularly as regards employees, by discussing lessons learned and new approaches developed as a result of the pandemic and explaining how these will continue to be embedded in the business going forward.



The growing awareness of both the relationship between purpose and profit and the expectation that companies deliver sustained value to a range of stakeholders is redefining the social contract between business and society.

Boards need to increasingly recognise that transparency and accountability are essential to enhance trust in the way they are translating their purpose into action. Authentic reporting is key to maintaining this trust and to communicate the company’s own story.

The Supervisors’ reports and the recommendations emanating from our review of published financial statements should greatly help.

Monthly Reporting Pack - November 2021

Irish/UK GAAP & Related Developments

FCA emphasises importance of compliance with new TCFD Listing Rule

FRC publishes a staff factsheet on climate-related matters for FRS 102 reporters

UK government publishes draft legislation on climate-related financial disclosures

Joint statement by the FCA, PRA, TPR and FRC on the publication of Climate Change Adaptation Reports 

FRC Lab publishes a report on better practice TCFD reporting

UKEB research project on goodwill

FRC Annual Review of UK Corporate Governance Code

FRC and FCA issue joint letter to CEOs on structured reporting

Financial Reporting Lab Newsletter: Tenth Anniversary Issue


IFRS & Related Developments

IFRS Foundation creates new sustainability standards board

Climate-related disclosures prototype

General requirements for disclosure of sustainability-related financial information prototype

Two IOSCO speeches at COP26 focus on new ISSB

G20 supports IFRS Foundation sustainable standard-setting

European Union adopts IFRS 17 — with annual cohort exemption

EBA report on IFRS 9 implementation

IASB proposes amendments to IAS 1 regarding the classification of debt with covenants

IASB proposes amendments to IAS 7 and IFRS 7 regarding supplier finance arrangements

Updated IPSAS-IFRS alignment dashboard

IPSASB guidance on borrowing costs

ICAEW concludes series on IPSAS vs IFRS


Legal & Regulatory Developments

European Single Electronic Format (ESEF) Update



IFRS Foundation creates new board to set global sustainability standards

FRC issues advice on annual reports for 2021/22 reporting season

Accounting roundup

IFRS on Point

FinSight - Insights for the financial services and real estate industries in Ireland

The Audit Committee Frontier - Addressing climate change

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