The COVID-19 pandemic has hit Luxembourg as other European countries since the beginning of the year 2020 and has adversely affected a number of issuers under CSSF's supervision. In this context, the CSSF has decided to carry out a thematic review of the information provided by issuers concerning the impact of COVID-19 on their operations and financial performance as of 30 June 2020.
We noted that information provided in the interim financial reports regarding the effects of the COVID-19 pandemic was generally sufficiently entity-specific and detailed. The information was mainly available in the management reports and often repeated or summarized in the relevant notes to the financial statements.
However we consider that there are several areas for improvement that issuers should consider when preparing their future financial information regarding the impacts of this pandemic.
The main issue encountered concerns the impairment of non-financial assets. Indeed we were confronted with insufficient disclosure in the interim financial reports and more importantly, we observed that the assessments made by management with regard to the recoverable value of non-financial assets did not always appear consistent with the impacts of the COVID-19 pandemic (on the first half-year 2020 and planned) described elsewhere in the financial reports.
Another area for improvement concerns the measurement and disclosure of expected credit losses (ECLs), especially on trade and lease receivables for corporates. A number of the issuers examined hold significant receivables for which the credit risk is likely to change as their clients could be weakened by the effects of COVID-19. As such, we expect issuers to provide precise information on their credit risk management in response to COVID-19 and on any significant adjustments made to the impairment models as well as on the impairment losses recognised.
The findings detailed below relate to interim and annual financial reports published for periods ending March 2020 or after. The purpose of this document is to assist issuers in preparing their next interim or annual financial report.
1. Scope and methodology of the review
We selected for our thematic review the interim financial reports as at 30 June 2020 or the annual financial reports for period ending March 2020 for 16 issuers. These reports were prepared in accordance with IFRS.
Issuers included in the sample are those for which we determined that the COVID-19 outbreak had a significant effect on the first half-year 2020, based on several criteria (sectors at risk; drop in market capitalisation; decrease in revenues, net income or other financial performance measures explained by COVID-19; guidance / outlook for full-year 2020 withdrawn or negatively updated).
Industries represented in the sample are as follows:
The topics reviewed were notably those identified in the ESMA public statement on implications of the COVID-19 outbreak on the half-yearly financial reports (ESMA Public Statement1), in particular:
- Disclosures reflecting significant uncertainties, going concern and risks linked to COVID-19;
- Change in credit risk and impact on expected credit losses;
- Impairment of non-financial assets;
- Disclosure requirements related to the application of relief and support measures granted by public authorities;
- Presentation of COVID-19 related items in the primary statements;
- Management reports and alternative performance measures (APMs).