Within the EU investor protection framework, issuers are required to provide different investor groups with relevant information. The introduction of the prospectus summary (which has recently undergone substantial changes) clearly shows that EU legislator include unsophisticated investors among the users of financial information. Nevertheless, the issuers’ accounting regime seems to be inconsistent with this regulatory approach. Due to their ever increasing complexity, IAS/IFRS are not suitable to meet unsophisticated investors’ needs and can lead to information overload. Given that a simplification of IAS/IFRS does not appear to be possible, and would be inefficient, the article looks at the UK Strategic Report model and argues that the narrative component of financial reports can play a key role in rendering EU issuers’ financial reports more informative and more suited to meeting information needs of different groups of users by diversifying information directed at unsophisticated and sophisticated investors. Although Directive 2013/34/EU regulates the contents of management reports, a harmonized practice of narrative reporting at EU level is lacking, due to the high degree of flexibility provided by the Directive 2013/34/EU. The article outlines the framework of a possible EU (more) harmonized approach in the area of narrative reporting, arguing that the ESMA may foster harmonization by promoting the adoption at the national level of proactive enforcement activities aimed at developing guidance and recommendations on the contents and format of narrative reporting, and possibly providing issuers and national enforcers (on which first rests the responsibility to enforce accounting rules) with guidelines on narrative reporting.
The EU Issuers’ accounting disclosure regime and investors’ information needs. The essential role of narrative reporting
Strampelli, Giovanni
2018
Abstract
Within the EU investor protection framework, issuers are required to provide different investor groups with relevant information. The introduction of the prospectus summary (which has recently undergone substantial changes) clearly shows that EU legislator include unsophisticated investors among the users of financial information. Nevertheless, the issuers’ accounting regime seems to be inconsistent with this regulatory approach. Due to their ever increasing complexity, IAS/IFRS are not suitable to meet unsophisticated investors’ needs and can lead to information overload. Given that a simplification of IAS/IFRS does not appear to be possible, and would be inefficient, the article looks at the UK Strategic Report model and argues that the narrative component of financial reports can play a key role in rendering EU issuers’ financial reports more informative and more suited to meeting information needs of different groups of users by diversifying information directed at unsophisticated and sophisticated investors. Although Directive 2013/34/EU regulates the contents of management reports, a harmonized practice of narrative reporting at EU level is lacking, due to the high degree of flexibility provided by the Directive 2013/34/EU. The article outlines the framework of a possible EU (more) harmonized approach in the area of narrative reporting, arguing that the ESMA may foster harmonization by promoting the adoption at the national level of proactive enforcement activities aimed at developing guidance and recommendations on the contents and format of narrative reporting, and possibly providing issuers and national enforcers (on which first rests the responsibility to enforce accounting rules) with guidelines on narrative reporting.File | Dimensione | Formato | |
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