Annual reports of listed companies have become more transparent concerning remuneration based on shares, such as the award of shares and options on shares to senior directors and managers. At the same time, 30 percent lacks information concerning this aspect and a quarter of the companies who do report this remuneration do not include the part based on shares in the total remuneration. The AFM concludes this on the basis of a theme investigation into 100 annual reports.
The AFM established in the theme investigation that companies more often explain the remuneration based on shares in the 2010 financial reporting when compared with the 2007 financial reporting, but that the transparency in financial reporting can be improved in various areas. The explanation should be improved by reporting the amount of the remuneration based on shares of managers in key positions and to include it in the total of manager remuneration as well. In addition, the explanation of this remuneration should be based on the costs incorporated in the income statement.
2011 Activities Report
The theme investigation into remuneration is part of the 2011 Activities Report. Each year, the AFM publishes its Activities Report concerning the supervision of financial reporting. The report provides an overview of the AFM's activities on the basis of the Financial Reporting Supervision Act (Wtfv). This Activities Report also devotes attention to the consistent presentation of payments related to pension liabilities in the cash flow statement.
The AFM renders account of its activities throughout the ongoing financial year. Both these interim reports and the Activities Report are intended to provide companies and accountants with support in the correct application of reporting standards at an early stage.
More effect with fewer formal measures
In 2010, the AFM completed 88 (2010: 67) investigations into the annual financial reporting. This concerns 47 (full) desktop reviews and 41 follow-up investigations based on the 2010 findings (fourteen more than in 2010). 85 investigations of those started in 2011 and the overflow from 2010 have been completed. It is evident from the follow-up that notifications made in the previous were followed up well in 85 percent of the 2010 financial statements.
The percentage completed full desktop reviews that require a further explanation dropped from 86 to 64 percent. The drop is mainly for the account of AEX and AMX funds and is generally caused by better compliance with reporting regulations and because the AFM more often has informal contact with a company to provide an explanation concerning the implementation of a certain standard.
In view of the positive responses of the companies involved, the AFM for the first time implemented this informal approach in its supervision for the full desktop reviews. Increasingly often this leads to the desired effect, i.e. an improvement in the quality of financial reporting, through better compliance with reporting regulations. In some cases, agreements are made concerning the financial reporting on the previous financial year or the coming year. Sometimes there are also informal consultations concerning individual issues at the request of companies.
Proper reporting concerning government bonds by financial institutions in semi-annual reports
The AFM has established that almost all Dutch financial institutions have applied the reporting regulations correctly with respect to (Greek) government bonds. This is not the case in all European countries, as is evident from a public statement published by ESMA on 25 November 2011.
Considerations from theme investigation already published in 2011
The supervisor published the Considerations for financial reporting 2011 on 28 September 2011. On 27 October 2011, the AFM published its findings from three other theme investigations performed by the AFM in 2011.
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.