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EU Transparency Directive to enhance interim reporting Back  
The introduction of the EU’S Transparency Directive into Irish legislation over the next two years will require major changes in how corporates report their performance in line with the IFRS standard on interim reporting, with the addition of interim management statements to current reporting requirements, and increased management responsibility for interim reporting in line with corporate governance standards, writes Brendan Sheridan.
Corporate interim reporting will be subject to major change arising from the EU’s Transparency Directive, which has to be introduced into Irish regulation; and as part thereof, companies will have to comply with the International Accounting Standards Board’s standard, IAS 34: Interim Financial Reporting.

These changes are due to be brought in over the next two years. Some companies may volunteer to follow IAS 34 in 2005, at least to the extent it augments existing listing rules.

Transparency Directive
In December 2004 the European Commission finally adopted the directive on ‘The Harmonisation of Transparency Requirements in relation to Information about Issuers whose Securities are Admitted to Trading on a Regulated Market’ – the Transparency Directive.

The Directive is a further measure in the EU’s Financial Services Action Plan and requires a listed entity to make public:
- Its annual financial report at the latest four months after the end of each financial year;
- A half-yearly financial report covering the first six months of the financial year as soon as possible after the end of the relevant period, but at the latest two months thereafter;
- A statement during each six-month period to be made in a period between ten weeks after the beginning and six months before the end of the relevant period - this only applies to issuers of shares.

The Transparency Directive is to be introduced into legislation by individual member states within two years after its adoption at EU level.

Interim Statements
Half-yearly financial reports will be required to include within the management report a confirmatory statement, from those responsible for the management report, to the effect that the report gives a fair review and that the condensed set of financial statements gives a true and fair view. The names and functions of the officers taking these responsibilities must be clearly identified. This is considered a higher level of responsibility than presently exists and is similar to the process which applies in other jurisdictions, particularly the US.
The interim management report shall include a description of the principal risks and uncertainties for the remaining six months in addition to an indication of important events that have occurred during the first six months. It shall also be required to provide a report on major related party transactions, a term which is undefined in the Directive.

The interim management statements to be produced during each half year shall provide:
- An explanation of material events and transactions that have taken place during the relevant period and their impact on the financial position of the issuer; and
- A general description of the financial position and performance of the issuer during the relevant period.

Issuers who already publish quarterly financial reports shall not be required to produce interim management statements. This generally applies to companies with a dual listing on the U.S. Stock Exchange where quarterly reporting is a requirement.

IAS 34 – Interim Reports
The Transparency Directive requires issuers to prepare their interim reports in accordance with IAS 34: Interim Financial Reports.

IAS 34 imposes on companies additional requirements to those already included in the listing rules. These include:
- Detailed disclosures on, for example, major acquisitions or disposals of subsidiaries, changes in estimates or contingent liabilities or contingent assets and changes in equity statements;
- Segmental revenue and results for the business or geographical segments used as the company’s primary basis of reporting in its annual financial statements must be given; and;
- The balance sheet of the immediately preceding year end must be included for comparative purposes in the interim statement.

The listing rules require that where accounting policies are to be changed in subsequent financial statements, the new accounting policies and presentation should be followed, and the changes and the reasons therefore should be disclosed in the half-yearly report.

IFRS Implementation
International Financial Reporting Standards (IFRS) will apply for the consolidated financial statements of listed companies for accounting periods beginning on or after 1 January 2005. There will need to be extensive explanation of the changes to accounting policies emanating from this to ensure readers are fully informed. The amount of time and effort in restating for the impact of IFRS will be significant, and Listing Authorities have offered an extension of 30 days for the first IFRS interim report. There will also be time pressures on auditors who are asked to review these interims. Companies will want to plan early the auditor’s involvement to enable completion of the review by the relevant deadline.

Deloitte Survey
A survey was carried out by Deloitte of UK listed companies and a summary of some of the main findings, together with a comment on the Irish position based on a limited review of the reporting practices of a number of Irish listed companies, is set out below:
- 38 per cent of companies surveyed publish their interim reports in the third month after period end which is outside the time requirement of the Transparency Directive. The majority of the larger Irish PLC’s currently report within two months of period end. Some of the smaller listed companies may have to improve their efficiencies to bring reporting within the two month period;
- 46 per cent of companies surveyed produce only six-monthly and annual performance numbers – with no quarterly reporting. In Ireland, some of the larger companies have dual U.S. listings, thereby requiring them to produce financial information on a quarterly basis. Otherwise, there is no quarterly reporting by companies; and
- While segmental information is more frequently given by the larger companies, overall 50 per cent of companies currently provide no segmental analysis within their financial information. The position is similar in Ireland, with perhaps even fewer companies including segmental information in their interim reports.

The Transparency Directive will change the reporting landscape for our listed entities with the majority being subject to additional requirements and many having to improve the efficiency and timeliness of their interim reporting.

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