The transparency of the information presented in half-yearly financial reports of listed companies has significantly improved in comparison to 2008, according to the review published by the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, or AFM) published on 17 May 2010. While 2009 saw a marked increase in the information provided to investors, the AFM still sees room for improvement in certain areas. These include the disclosure of significant events in the first six months and the risks and uncertainties for the remaining six months of the financial year. The disclosures regarding material business acquisitions also need to be improved. This relates to the statement of comprehensive income.
The AFM is responsible for supervising half-yearly financial reports of listed companies since 2009. The AFM reviewed the half-yearly financial reports of 60 companies to identify the impact of the implementation of the Transparency Directive from 2009 on the quality and size of the 2009 half-yearly financial reports compared with 2008.
All companies reviewed published their half-yearly financial reports within two months of the end of the first half of the financial year. In 2009, all the half-yearly financial reports reviewed included half-yearly financial statements, whereas only 75% did so in 2008. Some half-yearly financial reports did not have a clear distinction between the half-yearly management report and the half-yearly financial statements.
A remarkable outcome is that 64% of the companies decided to include uncondensed primary statements (balance sheet, statement of comprehensive income, cash flow statement and statement of changes in equity) in their half-yearly financial statements, while condensed statements would have been adequate.
Due to an inaccuracy in the wording of the law, companies formulate the text of management’s true and fair view statement regarding the 2009 half-yearly management report in various ways. These can be divided into three categories:
- The company complied with the statutory requirements in respect of management’s true and fair view statement regarding the half-yearly management report. In 12% of these cases, the wording of management’s true and fair view statement did not match the content of the half-yearly management report.
- The company based the wording of management’s true and fair view statement regarding the half-yearly management report on the content of the 2009 half-yearly management report. In 48% of these cases, the wording of management’s true and fair view statement did not comply with the statutory requirements.
- Company used their own wording in management’s true and fair view statement regarding the half-yearly management report.
A legislative proposal to amend the statutory provisions concerned is before the Dutch House of Representatives. In anticipation of this amendment, the AFM can imagine companies using the wording that matches the statutory content of the half-yearly management report.
The disclosures regarding the seasonality or cyclicality of operations, dividend payments and segment revenue have significantly improved in comparison to 2008.
Auditor involvement in the half-yearly financial reports increased in 2009. The AFM assumes that this had a positive impact on the quality of the 2009 half-yearly financial reports. The number of cases where the auditor was engaged to conduct a limited review increased to 28% in 2009, up from 17% .
The amendment to IAS 1 regarding the presentation of the results took effect in 2009. The statement of comprehensive income can be presented either in a single statement of comprehensive income, or in two statements (a separate income statement and a second statement of other comprehensive income). The statement of other comprehensive income includes all results recognised directly in equity, but does not include any changes in equity arising from transactions with equity holders. Of the 57 companies presenting an income statement, 16% did not include the required statement of other comprehensive income. There is room for improvement in this area.
The disclosures of material business acquisitions were inadequate in all cases reviewed. It is clear that this disclosure requires improvement.
The report is only available in Dutch.
The AFM promotes fairness and transparency within financial markets. We are the independent supervisory authority for the savings, lending, investment and insurance markets. The AFM promotes the conscientious provision of financial services to consumers and supervises the honest and efficient operation of the capital markets. Our aim is to improve consumers’ and the business sector’s confidence in the financial markets, both in the Netherlands and abroad. In performing this task the AFM contributes to the prosperity and economic reputation of the Netherlands.
The AFM is committed to promoting fair and transparent financial markets.
As an independent market conduct authority, we contribute to a sustainable financial system and prosperity in the Netherlands.