28 November 2019

ESMA's Maijoor: Assessing the role of IFRS in building stronger European Capital Markets

IFRS, due to their focus on meeting the needs of users of financial information, have the potential to enable efficient capital allocation which is an important pillarof well-functioning capital markets. This also explains the long-standing collaboration between ESMA and the IFRS Foundation which is rooted in the acknowledgement that high-quality accounting standards, issued via an independent process and effectively enforced, are a necessary premise to promote orderly markets, investor protection and, ultimately, financial stability.

ESMA does not support the issuance of national or regional implementation guidance for IFRS, not only because it would be contrary to the IAS Regulation, but also because it would be potentially detrimental for the much-needed EU-wide consistent application of IFRS. Furthermore, EU or national specific solutions weaken our position as a single, cohesive jurisdiction and makes it less influential in the accounting debate at global level.

I should also admit that the principles-based nature of IFRS may sometimes make our enforcement work more challenging. In fact, depending on the national enforcement systems, the reliance on principles instead of more prescriptive requirements, may make it difficult for enforcers to take action and challenge issuers’ practices.

It is necessary to bring non-financial information to a level of maturity that is comparable to that of IFRS information and to complement IFRS financial statements. This will enable investors and other stakeholders to further assess the potential for value creation of issuers. To help this process, it is urgent to update the Non-Financial Reporting Directive with binding measures that specify, in more detail, principles and requirements for the preparation of non-financial disclosures.”

Looking ahead at the future development of corporate reporting in the broader scheme of stronger EU financial markets, I strongly believe that IFRS should remain focused on depicting economic reality in a neutral way. To do so, it is also important to ensure that an independent governance process oversees both the development and the endorsement of IFRS. I think that this is the best way to ensure that IFRS contribute to supporting long-term investment and the shift towards a more sustainable financial system. At the same time, we have to acknowledge that IFRS information –although it remains important –only tells part of the story. It is therefore necessary to bring non-financial information to a level of maturity that is comparable to that of IFRS information and achieve more transparency on non-financial information to complement IFRS financial statements. This will enable investors and other stakeholders to further assess the potential for value creation of issuers. To help this process, it is urgent to update the Non-Financial Reporting Directive to complement it with binding measures that specify, in more detail, principles and requirements for the preparation of non-financial disclosures.

Full speech

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