AFM: Content of disclosures in the financial statements below par in important respects

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Companies need to devote more attention to the really important elements of their financial statements. Too often, material disclosures in the financial statements are missing or incomplete. Investors are not informed sufficiently, meaning there is a risk that they will make investment decisions without proper foundation. This is one of the major considerations in the report the AFM is publishing today, which contains an overview of the considerations for annual financial reporting for the 2012 financial year.

The considerations are derived from the provisional findings of the supervision of financial reporting for 2011, and prompted in part by the findings of fellow supervisors at European level. Account is also taken of the provisional outcome of the discussions within the European Securities and Markets Authority (ESMA) concerning the shared priorities for supervision of financial reporting for 2012 in the European Union.


The concept of materiality determines whether information has to be included in the financial statements or not. Information is considered material if omitting it and/or representing it inaccurately could influence decisions made by users of the financial statements.

The AFM regularly observes that material disclosures that are absent in the financial statements are included in presentations to analysts. These presentations nearly always coincide with the publication of the annual financial reporting. The inclusion of important information in the analyst presentations leads the AFM to suspect that this information is indeed material and thus should have been included in the financial statements in accordance with the IFRS requirements.

Other items of attention

Besides disclosures, the AFM also wishes to draw attention to other elements of the financial reporting. Due to the poor economic circumstances, the AFM expects that many companies will need to carry out an impairment test in order to establish whether the carrying amounts of the assets are still realistic; in other words, to assess whether an impairment loss has to be recognised. The assumptions used in the impairment test are not disclosed, or not sufficiently specific. The risk paragraph is an increasingly important part of the annual report and should not consist of a brainstorm overview of all manner of risks. Investors need to understand the most relevant and important risks, the potential consequences and the control measures used. The risk paragraph needs more attention.

Improvement in disclosure regarding investment property and pensions

In addition to the considerations, the report states that as in previous years, the notifications issued by the AFM during the previous calendar year have generally been complied with satisfactorily.

The provisional findings of the thematic review of investment property show that a number of companies have improved their disclosure of the methods and key assumptions used to determine fair value. Further improvement is needed by other companies in this respect.
Companies that did not provide transparency in their 2011 financial reporting concerning the introduction of the new reporting requirements for pensions that will take effect on 1 January 2013 generally did so in their semi-annual financial reporting for 2012.

Early announcement

The considerations for 2012 are being announced at this time so that companies and auditors can take note of the areas that require improvement when preparing their annual financial reporting and carrying out their audit. For this reason, earlier this month the AFM already announced thematic reviews of the 2012 financial statements that will be performed in 2013. These will concern credit risks, cash flows and provisions. The AFM will also take a baseline measurement of the current status of the application of integrated reporting in 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.

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