13 November 2024
Recent observations made in October 2024 by the Irish Auditing and Accounting Supervisory Authority (‘IAASA’) have revealed a need for increased compliance with regulatory investigation disclosures.
According to the IAASA report titled ‘Observations on selected corporate reporting issues – years ending on or after 31 December 2024,’ companies subject to regulatory investigations must disclose that information if the investigation has the possibility of resulting in a fine or some other financial settlement.
According to the International Accounting Standards (‘IAS’) contingent liability is ‘…a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events but is not recognised because:
and that all contingent liabilities must be disclosed unless the possibility of ‘…an outflow of resources embodying economic benefits is remote’.
The IAASA engaged with some issuers during its 2024 examinations to determine whether matters such as regulatory investigations into the activity of the issuer would meet the criteria for disclosure as a contingent liability. The IAASA determined that an obligating event is either when the issuer allegedly breached the requirements or when the investigation commences, and that a finding of ‘…other than remote...’ is sufficient to trigger the requirement to disclose the relevant investigation.
This finding came from the IAASA’s expectation that ‘…information which is sufficiently significant to warrant inclusion in, for example, a press release, is likely to be also relevant for disclosure in the management report.’
IAASA CEO Kevin Prendergast released a statement on this:
“IAASA notes that the preparation of a sustainability report in compliance with European Sustainability Reporting Standards is an extensive process and obtaining assurance on the sustainability report will also be an extensive and time-consuming exercise,”
“As such, IAASA expects that achieving CSRD compliance may significantly impact a company’s annual reporting timelines. IAASA encourages audit committee chairs to carefully consider their reporting timelines and provide realistic expectations to investors in this regard.”
What can be deduced from the above is that the IAASA will likely carry out additional background research on issuers to ensure that management reports address the risks and mitigating factors undertaken by issuers who have been or are subject to investigation by regulators. This may also likely encompass any public criticism levelled against the issuer. This should help ensure that users of financial statements have all necessary and relevant information to make informed commercial decisions.
Our Financial Services Regulation team possess extensive knowledge and experience having dealt with issues spanning across a wide range of industries, and have an intimate understanding of Central Bank requirements, so if you have any regulatory queries or issues please reach out to us.
