Enforcement of the 2024 annual reports published by issuers subject to the Transparency Law

Purpose & Legal Basis

The CSSF, under Article 22 of the 11 January 2008 Transparency Law, ensures that issuers (both financial and non-financial) comply with reporting requirements when preparing annual reports. The CSSF’s upcoming enforcement campaign in 2025 will specifically focus on disclosures under IFRS and the new European Sustainability Reporting Standards (ESRS) introduced via Delegated Regulation (EU) 2023/2772.

European Common Enforcement Priorities (ECEPs)

In line with past practice, CSSF will align its supervision with the 2024 ECEPs identified by ESMA and national accounting enforcers. A public statement highlighting these ECEPs was issued by ESMA on 24 October 2024 (ref. ESMA32-193237008-8369), and CSSF encourages issuers to take them into account alongside its own enforcement focus.

Key Focus Areas for Enforcement

The CSSF has outlined several priority areas it will scrutinize in 2025:

1. Liquidity Disclosures

Issuers must provide clear and meaningful information on their liquidity risk—especially around:

• Compliance with debt covenants, including recent IAS 1 updates on non-current liabilities and IFRS 7 disclosures regarding defaults or renegotiations.

• Illustrating the ability to fulfill short-term obligations amidst economic uncertainties.

• Specific attention to classification rules and the timing of covenant breaches as per IAS 10 (e.g., reclassification of non-current liabilities if covenants are breached at year-end).

2. Statement of Cash Flows (SoCF)

The CSSF highlights frequent compliance gaps such as:

• Presenting cash flows on a gross basis.

• Excluding non-cash transactions from the SoCF (though they must be disclosed elsewhere).

• Correct classification of bank overdrafts—bank borrowings belong under financing activities unless they function as cash equivalents as part of routine cash management.

• Transparent disclosure of accounting policies and judgment in classifying interest, dividends, leases, supplier-finance, and other complex flows.

3. Accounting Policies, Judgments & Significant Estimates

High-quality reporting demands:

• Entity-specific, not generic, disclosures of accounting policies, judgments, and estimation uncertainties.

• Clear descriptions of how sensitive assumptions could materially change carrying amounts, along with sensitivity analysis where relevant.

• Transparent disclosure of going concern assessments and any material uncertainties, including mitigations (e.g., refinancing, restructuring, new funding).

4. Control, Joint Control, & Significant Influence Judgments

When determining control or influence, issuers must consider contractual rights, legal frameworks, and other substantive factors beyond voting rights alone. These judgments should be well-explained under IFRS 12 with entity-specific analysis.

5. Provisions & Estimation Uncertainties

Provisions often require complex judgment. Issuers must disclose when a provision is not recognized due to uncertainties—even if other recognition criteria are met—per IAS 37 and IAS 1. Additionally, CSSF reminds issuers to consider the recent IFRS IC agenda decision on climate-related commitments, which may impact provision accounting.

6. Materiality in ESRS Reporting

Under ESRS, issuers must apply a double materiality assessment—considering both financial and societal/environmental impacts. The CSSF encourages use of EFRAG’s Implementation Guidance (IG 1) to navigate materiality assessments and disclosures. The transparency of process for identifying stakeholders, and applying materiality across DR and datapoints (especially under ESRS 2) is vital.

7. Scope & Structure of ESRS-based Sustainability Reports

• The sustainability report should mirror the same reporting entity as in the financial statements but cover the issuer’s entire value chain.

• If the issuer uses the 3-year transitional relief for full value chain data, it must explain any data gaps and future plans.

• The report’s structure must align with ESRS 1 Section 8 and Appendix D, even if using alternative presentation formats.

• Strong connectivity between sustainability disclosures and financial statements is required, with clear cross-references between the two.

8. ESEF Reporting Mark-up Quality

For issuers under ESEF (European Single Electronic Format), the CSSF will focus on common tagging errors in the statement of financial position—such as misaligned markup, incorrect scaling, anchoring, or calculations. Thorough testing for consistency, completeness, and technical accuracy is essential.

Why This Matters for Your Blog Audience

This CSSF communiqué underscores Luxembourg’s move toward enhanced enforcement of both financial and sustainability reporting frameworks. Issuers are expected to elevate transparency, precision, and entity-specific clarity in their disclosures—aligned with both ESMA priorities and new EU reporting standards.