In December 2021, Luxembourgish regulator CSSF issued its enforcement priorities for 2021 annual reports. As expected, CSSF’s enforcement priorities align with the European Common Enforcement Priorities for 2021 financial reports issued in October 2021 by the European Securities and Markets Authority (ESMA).
However, we want to shine a light on additional priorities named by CSSF, particularly the presentation of primary financial statements.
Each year, CSSF identifies areas of interest informed by: important and relevant topics for issuers, the regulator’s experience and judgements and assumptions for issuers to make. For the 2021 financial statements, the selected additional topics were classification and measurement requirements under IFRS 9: interest rate benchmark reform and presentation of primary financial statements.
The Primary Financial Statements project is already part of IASB’s work to improve communication in financial reporting and set up requirements for presentation and disclosure in financial statements, namely in the statement of profit or loss. Currently, an exposure draft of ‘General Presentation and Disclosures’ is available; when implemented, it will replace IAS 1 Presentation of Financial Statements and will also amend some other standards.
The main goals of the Primary Financial Statements project are to:
- Introduce new pre-defined subtotals in the statement of profit or loss to improve consistency and comparison between companies
- Institute disaggregation guidance for large “other” balances to define unusual income and expenses and disclose relevant information or additional minimum line items in the statement of financial position
- Introduce and disclose some management-defined performance measures, which are not specified by current IFRS Standards and reconcile those to the subtotals specified by IFRS
- Remove some options from the IAS 7 Statement of Cash Flows to improve consistency in classification
Three reasons these draft financial statement presentation changes matter now
Even in draft form, these changes are already impacting our work:
- The project will significantly change presentation of profit or loss statements and will no longer have the previous IAS 1 flexibility. Companies should prepare to restructure their statement of profit or loss and redefine their subtotals.
- The CSSF wants issuers to pay attention to these possible future requirements on their 2021 annual reports and to encourage thorough review of their statement of profit or loss and the subtotals presented.
- The CSSF plans to perform a thematic review on this topic.
Making some of these financial statement changes now will make your path easier in the future.
Still have questions about these forthcoming financial statement changes? Just reach out to our team of experts at KPMG Luxembourg!