EU Companies Told To Be Clear On Virus Impact To Business

By Joanne Faulkner
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Law360, London (May 20, 2020, 11:41 AM BST) -- Europe's securities watchdog told companies listed on the bloc's stock exchanges on Wednesday to ensure upcoming six-monthly financial results accurately reflect the impact of the COVID-19 pandemic on their profits now and in the future.

The European Securities and Markets Authority gave EU listed companies more time to submit financial reports when the virus began to sweep across the bloc. The regulator said businesses should use the time to provide "relevant and reliable information," to investors.

"ESMA expects issuers most significantly impacted by COVID-19 to provide disclosures about the going-concern assessment and the related underlying judgments where these are significant," the watchdog said. Companies should tell investors of "significant uncertainties and risks, going concern, impairment of non-financial assets and presentation in the statement of profit or loss."

Businesses should also spell out any relief measures they have taken from regulators and governments during the outbreak.

The authority said they should be specific about the past and expected impact of COVID-19 on strategy, operations and cash flow. They should also provide detail for investors on disruption to supply chains and action they have taken to offset the effect of the pandemic.

"ESMA will collect data on how EU listed entities have applied the recommendations and will take into account those findings, amongst other considerations, in setting the enforcement priorities for the annual financial statements for the year 2020," the regulator said.

Companies are already required to state why they believe they can stay in business for the next 12 months. There is uncertainty about whether EU economies will be able to bounce back from the shock of the crisis or whether they could face a deep and uneven recession. 

ESMA also advised auditors to pay close attention to its recommendations when they prepare interim financial reports.

Listed companies typically submit audited financial information to stock exchanges within four months of the end of their financial year under the bloc's 2004 Transparency Directive. Businesses with a December year-end publish statements by April, and this must include audited results.

Issuers of shares must also make their half-year results public within three months of the end of the six-month period. The measures are designed to ensure that investors have access to reliable information about companies and ensures a minimum level of transparency in the EU's capital markets.

ESMA said in March it was aware that listed companies and auditors may find it hard to meet the deadlines set by the directive because of the economic upheaval created by the coronavirus pandemic.

The authority instructed national watchdogs "not to prioritize" taking action against companies that publish their accounts within the extended period it has set out. But listed businesses must inform national authorities and shareholders if their results will be delayed beyond the deadline set out in the directive.

--Additional reporting by Najiyya Budaly. Editing by Ed Harris.

For a reprint of this article, please contact reprints@law360.com.

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