Financial reporting enforcement – listed companies
Published: 30 March 2021
Finanstilsynet oversees financial reporting by Norwegian-registered entities that are listed on a regulated market in Norway or elsewhere in the EEA, as well as certain foreign entities that are listed on a regulated market in Norway. This supervision aims to contribute to instilling confidence in the financial reporting among investors who invest in these companies.
About financial reporting enforcement
At the end of 2020, 285 companies were subject to supervision of financial reporting. Of these, 46 were foreign. 203 were issuers of shares and equity certificates. Several issuers of shares and equity certificates also issued bonds that were listed on Oslo Børs. Over the course of the year, seven new companies were listed on Oslo Børs while none were listed on Euronext Expand. A total of five companies were delisted, all from Oslo Børs.
Enforcement of financial reporting
In its control of financial reporting in 2020, Finanstilsynet gave priority to following up the new accounting standards on leases, financial instruments and revenue from contracts with customers. In addition, it followed up some issues concerning income tax and cash flow statements. Finanstilsynet applies several criteria to select entities for review. Some entities are selected on the basis of signals given or by rotation, others on the basis of risk assessments. Risk-based analyses rely partially on data reported by companies via the Altinn internet portal.
Finanstilsynet reviewed all or parts of the financial reporting of 104 entities. Particular attention was focused on issuers of shares and equity certificates, but also on some bond issuers. Finanstilsynet also reviewed the audit reports of all listed companies. 22 cases were subject to closer scrutiny. Eight of these have yet to be finalised.
Finanstilsynet received no reports from auditors indicating that the financial reporting of the issuers concerned failed to provide a true and fair view, cf. Section 5-5 (5) of the Securities Trading Act. Finanstilsynet received two reports indicating that reporting from two different issuers failed to give a true and fair view, cf. Section 19-2 (7) of the Securities Trading Act.
Here are the most important cases brought to completion in 2020:
Aqua Bio Technology ASA
The supervision covered certain aspects of the annual financial statements of Aqua Bio Technology ASA (ABT) for 2018 on the company's valuation of inventory and patents. ABT was unable to estimate the net realisable value of its inventory as at 31 December 2018 based on reliable information about historical sales data or forecasts. Finanstilsynet’s assessment was that the company's inventory as at 31 December 2018 should have been written down to zero in accordance with the provisions on the estimation of net realisable value. ABT accepted Finanstilsynet's assessment, and the inventory was written down by NOK 16.5 million to zero as at 31 December 2018.
Finanstilsynet also found indications of a decline in value of the company's patents at year-end, and that the company should have estimated the recoverable value of its patents as at 31 December 2018. ABT accepted Finanstilsynet's assessment and estimated the patents’ recoverable value, which was written down by NOK 3.6 million to zero as at 31 December 2018.
Salmones Camanchaca S.A.
Finanstilsynet’s supervision covered certain aspects of the financial reporting of Salmones Camanchaca S.A., a Chilean aquaculture farming company with shares listed on the Santiago Stock Exchange and Oslo Børs. The supervision included an assessment of the valuation of biological assets. Up to and including the third quarter of 2019, the company valued immature fish at cost and argued that its fair value could not be measured reliably. In Finanstilsynet’s assessment, the company had failed to demonstrate that estimating immature fish at fair value is clearly unreliable and should be able to estimate fair value based on internal and external documentable assumptions. The company accepted Finanstilsynet’s assessment and now measures immature fish at fair value.
Finanstilsynet also questioned the presentation of biological assets as both current and fixed assets in the balance sheet. The company has changed this in its financial statements for 2019, and all biological assets are now presented as current assets.
Finanstilsynet ultimately questioned the accounting treatment of a joint account partnership, where the dividend received from the partnership was recognised as sales revenues. The company reviewed this accounting principle in its financial statements for 2019. The dividend received was reclassified and presented as ‘other income (losses)’ in the income statement.
Solon Eiendom ASA
Finanstilsynet's supervision covered certain aspects of the financial reporting of Solon Eiendom ASA, mainly information about its investment in the company Solon Realkapital AS. In Finanstilsynet’s assessment, the annual report should provide a more thorough analysis of figures in the financial statements, as well as a more detailed description of the sales contracts with Solon Realkapital. Finanstilsynet also pointed out that the annual report must contain an adequate description of the key risks and uncertainties related to transactions with Solon Realkapital.
There were also inadequate disclosures about transactions with Solon Realkapital as a related party and about segment information. Finanstilsynet ultimately pointed out that some of the disclosures set out in the revenue recognition standard IFRS 15 were missing.
Havyard Group ASA
Finanstilsynet’s supervision covered certain aspects of the financial reporting of Havyard Group ASA in connection with the implementation of IFRS 15 Revenues from contracts with customers in 2018. The supervision included an assessment of some aspects of Havyard's application of IFRS 15 for two contracts, a shipbuilding contract and a contract for the delivery of design and equipment. The company's original accounting treatment of the contracts was not fully compliant with IFRS 15. The company reviewed its approach. The review was based on other sections of IFRS 15 and on a different approach than the company's original assessments of the contracts. The company thus concluded that there was no need to change the accounting treatment of the contracts.
Control of listed companies’ compliance with requirements for the statement of cash flows
In 2020, Finanstilsynet conducted a thematic inspection on how the companies complied with the disclosure requirements in IAS 7 Statement of cash flows. Based on some indications of weak compliance with these requirements, Finanstilsynet surveyed the compliance of twelve companies with the disclosure requirements in their financial statements for 2019. Finanstilsynet observed wide variation in the reports with respect to where the requested information was presented. The review revealed that a number of companies have an improvement potential, and Finanstilsynet expects these companies to comply with the requirements.
Norway Royal Salmon ASA
Finanstilsynet's supervision covered certain aspects of the financial reporting of Norway Royal Salmon ASA in the financial statements for 2019. This was part of a thematic inspection on how the companies complied with the disclosure requirements in IAS 7 Statement of cash flows. In accordance with the standard, an entity shall provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. Finanstilsynet's assessment was that the company had not provided sufficient and appropriate information about changes in liabilities arising from financing activities in the financial statements. The company reviewed its financial statements for 2019 and agreed with Finanstilsynet’s assessment. Norway Royal Salmon ASA will ensure that the required information is provided in the financial statements for 2020.
Control of listed companies' compliance with income disclosure requirements
In December 2019, Finanstilsynet published the report IFRS 15 – Disclosures and presentation in annal financial statements, where it reviewed a number of observations of 20 companies' disclosures and presentation according to IFRS 15. The report was based on a desk-top inspection of the companies' 2018 financial statements. Finanstilsynet pointed out that there was significant room for improvement for the majority of the companies in the review. With respect to the 2019 financial statements, Finanstilsynet carried out the same review of ten companies, three of which were also included in the review for 2018. In the report concerning the 2019 financial statements, Finanstilsynet summarised its observations and compared them to the previous year's observations. The observations concerning the 2019 financial statements are largely consistent with the observations concerning the 2018 financial statements. Finanstilsynet observes that there is still significant room for improvement for the majority of the companies in the review.
Late publication of periodic financial reports
In 2020, Finanstilsynet imposed administrative fines on Havyard Group ASA, Havilafjord AS and Care Bidco AS for late publication of annual and half-yearly reports.
Deficiencies in financial reporting
On 24 June 2020, Finanstilsynet published an overview of deficiencies in listed companies’ annual financial statements after reviewing the annual reports for 2019. Three companies had failed to publish an audit report, five companies had failed to publish a declaration of responsibility, one company had failed to publish a report on payments to government authorities pursuant to Section 5-5a of the Securities Trading Act, and one company had failed to publish a statement on social responsibility, cf. section 3-3c of the Accounting Act.
On 23 October 2020, Finanstilsynet published an overview of deficiencies in listed companies’ half-yearly reports. Ten companies had failed to publish a declaration of responsibility and 19 companies had published an incomplete declaration in which the names and positions of those responsible for the statement were not clearly stated. The companies were asked to rectify this in future reporting.
Review of other financial information
Alternative performance measures
In 2020, Finanstilsynet reviewed the financial reporting of 14 listed companies. Ten annual reports for 2019, four half-yearly reports for 2020 and a selection of stock exchange statements were reviewed for compliance with the guidelines for alternative performance measures (APMs) issued by the European Securities and Markets Authority (ESMA). Finanstilsynet would like to highlight the following observations:
- Although there are still cases of inadequate disclosures, the situation has improved, as the companies provide the required information on the use, definition and reconciliation of the APMs used.
- Several of the companies appear to fail to understand the definition in section 17 of the guidelines. This is a broad definition which with some exceptions will encompass all financial measures other than those defined or specified in the applicable financial reporting framework. This means that financial measures such as EBIT, operating profits and key figures fall within the definition and scope of the guidelines when APMs are presented outside the financial statements.
- It is unfortunate that APMs are given a label that does not reflect their content. It is also unfortunate to use a label that must be considered identical or similar to a measure defined or specified in the applicable financial reporting framework. Unclear labels could make it difficult for users to adequately assess the APM. If this is combined with lack of information about the APM, users may receive misleading information.
- Alternative performance measures are given more attention than financial measures.
- Thus far, no companies have been observed to change or introduce new alternative performance measures as a result of the Covid-19 pandemic.
Survey of listed companies’ sustainability reporting
Finanstilsynet has reviewed the companies’ reporting of sustainability information and climate risk. The survey included 209 listed companies and was based on the companies’ self assessments of the sustainability reporting to Finanstilsynet. The survey covered how the companies work with sustainability reporting, what information they report and how this information is presented. It was based on the requirements of Section 3-3 c of the Accounting Act, stating that the companies shall issue a statement on social responsibility. The survey also took into account the content of EU legislation that has not yet been implemented in Norwegian law, but is expected to enter into force shortly. A report with the results of the survey was published on Finanstilsynet's website in September 2020 and shows that the current reporting practices have significant deficiencies. Finanstilsynet has presented the report at several seminars arranged by other organisations.
Key findings from the survey:
- Many companies have a sustainability strategy that has been endorsed by their board of directors and management.
- The companies provide little information on risk and materiality assessments.
- Few companies report the financial consequences of risks related to sustainability and climate change or take this into account in the valuation of assets and liabilities.
- Climate risk reporting is limited, and the risks are generally not quantified.
The report will form the basis for Finanstilsynet’s further supervisory activity. The objective of the report is to provide guidance for the companies in their further work on sustainability reporting.
Communication and guidance
Finanstilsynet arranged an issuer seminar for companies listed on regulated markets in November 2020. The seminar mainly addressed the topics discussed above and took place as a webinar seen by more than 600 people. The seminar is part of Finanstilsynet’s communication initiatives. In addition, all cases, surveys and reports from thematic inspections are published separately.
Other supervised sectors:
- Banks and other financing activity
- Insurance and pensions
- The securities area
- Financial reporting enforcement – listed companies
- Prospectus control – transferable securities
- Mutual funds and collective investment schemes
- Investment firms
- Securities market conduct
- Infrastructure in the securities area
- ICT and payment services
- Money laundering and financing of terrorism
- Consumer protection
- International cooperation
- Current topics