CESR analysis of IFRS 7 disclosures on financial instrument holdings: almost 10% of FTSE Eurotop financial companies fail in 2008
02 November 2009
The findings revealed that a significant proportion of companies failed to comply with mandatory disclosure requirements relating to financial instruments, for example regarding the use of valuation techniques and 40% did not disclose sensitivities.
CESR publishes an analysis of the compliance of European financial institutions with disclosure requirements related to financial instruments. For the purposes of the analysis, CESR reviewed the 2008 year-end financial statements of 96 listed banks and/or insurers, including 22 companies from the FTSE Eurotop 100 index. The findings revealed that, in some areas, a significant proportion of companies failed to comply with mandatory disclosure requirements relating to financial instruments, for example regarding the use of valuation techniques and on relationships with special purpose entities (SPEs).
The purpose of the exercise was to see how the detailed requirements of IFRS 7 - Financial Instruments: Disclosures and certain additional recommendations, had been applied (see notes for editors). Information contained in such statements is key to understanding a company’s financial position and performance and its omission might consequently affect the ability of investors to make decisions regarding their investment.
CESR’s analysis also identified that a significant number of companies provided additional disclosures in line with recommendations published in late 2008 by various organisations such as the Senior Supervisors Group and the IASB Expert Advisory Panel .
CESR found a good level of compliance with disclosure requirements on the classification of financial assets and liabilities and their carrying amounts under IFRS 7. Many entities enhanced their fair value disclosures on certain instruments they believed to be of importance for users and provided additional information to help users to better understand the financial statements. IFRS 7 requires extensive disclosures regarding financial assets and liabilities held at fair value. If the market for a financial instrument is not active, an entity is required to establish fair value by using a valuation technique, which should be explained.
Although most entities disclosed the methods they had applied when using a valuation technique to determine fair values for classes of financial assets and/or liabilities, around 20% of all companies and almost 10% of FTSE Eurotop-companies did not make such disclosures. Around 40% of all companies (10% of FTSE Eurotop-companies) did not disclose the sensitivity of the fair values recognised in the financial statements to changes in the various assumptions.
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