Prepared by Cristina Cengia
On 16 February 2021 Consob issued the warning notice no. 1/21 (the “Warning Notice”) concerning the information to be provided:
- in relation to the 2020 financial statements prepared in accordance with international accounting standards by: (a) listed issuers with Italy as their member state of origin, issuers of financial instruments widely distributed to the public pursuant to Article 116 of Italian Legislative Decree no. 58/98 (the “Consolidated Law on Finance”) and issuers of financial instruments traded on multilateral trading facilities (the “Supervised Issuers”); (b) supervisory bodies of companies with listed shares as defined by Article 119 of the Consolidated Law on Finance, also in their capacity as audit committee pursuant to Article 19 of Italian Legislative Decree no. 39 of 27 January 2010, as amended and supplemented (the “Supervisory Bodies”); and (c) audit firms (the “Audit Firms”);
- by companies required to publish non-financial statements related to the year 2020;
- by issuers with listed shares and their supervisory bodies on the occasion of shareholders’ meetings convened to resolve upon capital increase or decrease;
- by those responsible for drafting offer documents and prospectuses;
- by issuers of financial instruments subject to the obligations under Article 17, Paragraph 1, of EU Regulation No. 596/2014 (so-called Market Abuse Regulation – MAR), supervised by Consob.
Annual financial reports for which the reporting period starts on 1 January 2020 or later (the “2020 Financial Statements”)
1 Information to be provided by Supervised Issuers
With reference to the information that must be provided by Supervised Issuers when preparing the 2020 Financial Statements, Consob drew attention to the indications contained in the “European common enforcement priorities for 2020 annual financial reports”, published by ESMA on 28 October 2020 (the “ESMA Document”), in which the Authority identified as thematics areas of particular significance to preparing 2020 Financial Statements, those of application of the following accounting standards: (i) IAS 1 “Presentation of Financial Statements”; (ii) IAS 36 “Impairment of Assets”; (iii) IFRS 9 “Financial Instruments” and IFRS 7 “Financial Instruments: Disclosures”; and (iv) IFRS 16 “Leasing”.
As per ESMA indication, particular attention must be given to the planning process by taking into account the possible impacts on business objectives and risks arising from, on one side, the pandemic and, on the other, the use of public measures to support the economy and their possible interruption, providing the necessary information in this regard in the management reports.
With reference to Supervised Issuers that prepare their financial statements in accordance with the provisions of the Bank of Italy Circular no. 262/2005, Consob highlighted the importance of complying with the specific indications that European regulatory and supervisory bodies (EBA, ESMA, ECB), as well as the IFRS Foundation, have addressed to credit institutions regarding the application of IFRS 9 on the measurement of expected credit losses.
With reference to the Supervised Issuers who make use of the suspension provided for by Article 6 of Law Decree no. 23/2020 “Temporary provisions on capital reduction”, Consob drew attention to the disclosure obligations set forth under the abovementioned Article, also specifying that, in the cases referred to in Articles 2446 and 2447 of the Italian Civil Code, the explanatory reports prepared pursuant to Article 125-ter of the Consolidated Law on Finance and the report on the balance sheet to be prepared pursuant to Article 2446, Paragraph 1, of the Italian Civil Code shall contain information the issuer’s situation, on the amount and nature of the losses accrued in the year for which the suspension measures are applied, on the reasons of the decisions taken regarding the possible postponement of the resolutions pursuant to Article 2446 and 2447 of the Italian Civil Code, as well as on the timing of the settlement of the losses and/or the recovery of the share capital.
2 Supervisory Bodies checks
With the Warning Notice Consob invites the Supervisory Bodies to: (i) intensify the information flow with the Board of Directors responsible for preparing the draft financial statements; (ii) promote communication with auditors as effective and timely as possible; and (iii) promote a timely dialogue with the corresponding bodies of the subsidiaries, pursuant to Article 151 of the Consolidated Law on Finance; as well as (iv) pay particular attention when preparing comments on the report on the balance sheet published pursuant to Article 2446, Paragraph 1, of the Italian Civil Code, referred to above.
Consob also stresses the importance on the evaluations carried out by the Supervised Issuers regarding the existence of the going concern assumption and the adequacy of the internal control system and the related information to be provided in the reports pursuant to Article 153 of the Consolidated Law on Finance.
3 Audit Firms checks
In carrying out the audit procedures, auditors are invited to provide additional procedures in view of the consequences that Covid-19 pandemic has had on the achievement of the companies’ planned budgetary targets. In particular, auditors are invited to assess all factors that may lead to significant errors or even fraud, paying particular attention to the information received, planning additional audit procedures if deemed necessary.
2 Non-financial statements
With reference to the non-financial statements that Supervised Issuers are required to provide pursuant to Legislative Decree no. 254/2016, Consob drew attention to the section 2 of the ESMA Document regarding: (i) the actions adopted to mitigate the impact of the Covid-19 pandemic on non-financial matters; (ii) the policies adopted on social and personnel topics; (iii) the business model adopted by the Supervised Issuers and value creation, considering the effects of the Covid-19 pandemic; (iv) the risks related to climate change; and (v) the interconnections between financial and non-financial information.
3 Information documents or prospectuses
As part of the information to be provided with reference to information documents or prospectuses, by means of the Warning Notice, Consob highlighted:
- in relation to the drafting of the public offer prospectuses and admission to trading of financial instruments and related supplements, the need to report the updated information on business plans and the impact on management dynamics perspective deriving from the continuation of the Covid-19 pandemic, with the indication of prospects hypothesized in relation to the duration of the pandemic and the lack of public measures to support the economy as well as, if the prospectus does not include forecasts, changes made to strategies and objectives resulting from the effects of the pandemic;
- with reference to the tender offer or exchange documents, that such documents shall indicate the information useful to identify the knowable impacts of the Covid-19 pandemic on the business of the bidder and the group to which it belongs;
- that the press release prepared pursuant to Article 39 of Consob Regulation no. 11971/1999 shall indicate, among the information provided for by Paragraph 1, letters e) and f) of the same, the information on any impacts deriving from the continuation of the Covid-19 pandemic and the lack of measures to support the economy.
4 Shareholders’ meetings to resolve on capital increases
With reference to the information to be provided in view of the shareholders’ meetings convened to resolve upon the capital increases according to the temporary measures referred to in Article 44 of the Law 16 July 2020, no. 76 (so-called “Simplification Decree”), Consob recalled that the Supervised Issuers must report in the explanatory reports drawn up pursuant to Article 125-ter of the Consolidated Law on Finance the information related to: (i) the simplified voting quorums envisaged by the Simplification Decree up to 30 June 2021; and (ii) the willingness to take advantage of the possibility of resolving upon a capital increase through new contributions with the exclusion of the pre-emptive right (pursuant to Article 2441, Paragraph 4, second sentence of the Italian Civil Code), even in case of lack of an express provision of the by-laws and within the broader limits of 20% of the pre-existing share capital (instead of 10%), with the related reasons.
5 Price-sensitive disclosure
In conclusion, in the Warning Notice, Consob also specifies that, if while planning or drafting of the final financial information, the Supervised Issuer should find significant difficulties in achieving the objectives of the business plan made public, such circumstance must be the subject of a timely “profit warning”.
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