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Securities-issuing companies should provide more information on pension obligations and profit expectations in their semi-annual financial reporting

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In general, securities-issuing companies publish better semi-annual financial reports. This is the conclusion drawn by the AFM from its regularly conducted reviews of the semi-annual financial reporting 2011 of securities-issuing companies. These reports have improved further in relation to previous years, as a result of which investors are provided with more and better information. There is room for improvement in a number of areas. Investors are still provided with too little information on risks and uncertainties, too little specific guidance on expected revenue and profit, and there is still too little transparency on the consequences of the implementation of the new standard on pension obligations.

Principal risks and uncertainties

A good understanding of risks and uncertainties is particularly relevant to investors in times of economic uncertainty. The notes to the financial statements should include the principal risks and uncertainties. This puts the figures in the (semi-annual) financial reporting in perspective. The AFM has established that only a small part of the companies has included a description of the risks and uncertainties in their semi-annual financial reporting. A large majority of the companies only refer to the risk section in their most recently published annual financial report or do not include any information at all. In particular, when at the time of the publication of the semi-annual financial reporting relevant new information is available, attention should be paid to this information.

Disclosure on outlook

It is not mandatory to include information on outlook in the semi-annual financial reporting. Only a limited number of companies provide information in their semi-annual report 2011 on expected growth, revenue and earnings before interest, taxes, depreciation and amortization (EBITDA).

Several companies describe the expected impact of the current economic uncertainties. These uncertainties are often a reason for companies not to provide any further information on outlook at all. The AFM is of the opinion that particularly today it would be appropriate to mitigate these uncertainties on outlook by being transparent. Also, because investors indicate that outlook to them is the most important part of the financial reporting. To satisfy the investors’ need for information improvements are necessary.

Consequences of the new standard on pensions

IAS 8.30 requires that companies in their financial reporting estimate the consequences of the future implementation of IFRS standards, which were published by the IASB, but are not yet effective. For instance, this is the case with IAS 19R, the revised standard on pension obligations in the financial report. The AFM has assessed to what extent the required disclosures are included in the annual financial reports 2011. The review included 69 securities-issuing companies whose total defined benefit obligations amounted to approximately €125 billion and whose total plan assets amounted to approximately €116 billion at the end of 2011.

Approximately two thirds of the companies under review do not or inadequately disclose the consequences of IAS 19R. In addition, the review shows that the quality of the disclosures of the implementation of IAS 19R varies widely. Formally, IAS 8.30 is applicable on the annual financial reporting. Therefore, the AFM encourages these companies to be transparent in their semi-annual financial reporting 2012 on this issue which is of interest to investors.

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.

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