As widely reported, several EU countries are presently facing increased bond yields and significant credit rating downgrades. The availability of fair and transparent information about exposures of individual institutions is of key importance to mitigate uncertainties and help prevent market mistrust. Repetition of the levels of strain that the global financial markets and the entire global economy were facing during the financial crisis in 2008-2009 may be avoided if political leaders, regulators, business leaders and the accountancy profession adopt a common approach in promoting integrity, transparency and responsibility in communication with markets.

The purpose of this FEE Alert is to highlight key issues faced by those involved with preparing half-year financial reports and auditors involved in reviewing them. It does not intend to interpret IFRS or other national accounting standards; it also does not intend to provide guidance or professional advice applicable to individual circumstances.

This Alert has been written before the Heads of State finalise their discussions on possible European interventions to address the sovereign debt crisis. Nonetheless entities have to finalise their half-year financial reports and auditors have to sign off on these reports in this uncertain economic environment. In this context, half-year financial statements and related disclosures on exposures to countries with stressed financial positions in the eurozone are of particular importance.

This situation creates an unprecedented level of focus on the work of the European accountancy profession. FEE recognises that the public expects the profession to work at all times - including in the current difficult circumstances - in an independent and rigorous manner and with due professional scepticism. Moreover, it will be critical to ensure that fair and transparent information is provided to users. Many in the profession are involved in preparing or reviewing half-year financial information and will play a critical role in achieving this.

Whilst it is a matter of professional judgement by preparers, on the one hand, and their auditors, on the other hand, to determine to what extent particular exposures to individual countries are impaired under IFRS or relevant national accounting standards, it is essential to ensure that the information provided allows users to apply their own judgement and make sound economic decisions based on clear understanding of the financial circumstances of the reporting entity and the risks it faces.

 

FEE takes the opportunity to remind preparers and their auditors that the following issues should be carefully considered in entities with exposures to sovereign debt or related exposures which follow IFRS or relevant national accounting standards:

The disclosure of the nature and extent of exposures to individual countries with stressed financial positions will depend on the entity’s specific facts and circumstances. This may include information describing:

• judgements made as to the assessment of whether there is objective evidence of impairment of financial assets, including the nature of the evidence assessed;