Germany: Coronavirus and capital markets - Delayed financial reports shall temporarily not be penalised


The economic uncertainties associated with the coronavirus are also affecting the financial reporting of listed companies. The European Securities and Markets Authority (ESMA), the supervisory authority for the European securities markets, has therefore now released a public statement regarding the effects of the COVID-19 pandemic on the deadlines for publishing financial reports, which apply to all issuers of securities which are admitted to trading on a regulated market.

ESMA recognises the effects of the coronavirus on financial reporting

In its statement, ESMA acknowledges the difficulties for issuers in preparing financial reports and the challenges faced by companies in preparing their financial statements and by auditors in auditing them in a timely manner due to the COVID-19 pandemic. These difficulties may affect the issuers' ability to publish reports within the statutory time limits.

In its statement, ESMA recommends that the National Competent Authorities (NCAs) in their supervisory capacity exercise leniency for a certain period of time towards issuers for whom the publication of financial reports is delayed beyond the statutory deadline. At the same time, the statement emphasises that issuers should inform both their competent NCAs as well as their investors about the expected delay in publication.

Obligation to publish financial reports in due time remains in effect

Issuers whose securities are admitted to trading on an EU-regulated market have to publish annual financial reports on a regular basis; issuers of shares or debt securities also have to publish half-yearly financial reports.

In Germany, capital market-oriented (within the meaning of section 264d of the German Commercial Code (HGB), or in other words listed companies have to publish their annual financial statements within four months of the end of the financial year; the half-yearly financial report at the latest three months after the end of the respective reporting period (sections 114 (1), 115 (1) German Securities Trading Act (WpHG)).

ESMA indicated only recently that if the financial report for 2019 is not yet finalised, companies should consider the actual and potential effects of the coronavirus pandemic on the basis of a qualitative and quantitative assessment of their business activities, their financial situation and their economic performance. If the financial report has already been finalised, this assessment should be included in the next interim report.

Grace periods for "coronavirus-related" delays

With its public statement dated 27 March 2020, ESMA recognised that issuers may face difficulties in timely financial reporting due to the effects of the COVID-19 pandemic. At the same time, it stressed that timely and transparent reporting is very important for the capital market. Issuers should therefore make every effort to prepare their financial reports despite the current crisis situation and publish them within the statutory time limit. If, in exceptional cases, timely reporting is not possible, issuers must inform the NCA and investors of the delay, the reasons for such delay and to the extent possible the estimated publication date.

However, according to ESMA, the current exceptional situation, which issuers are also experiencing, should be taken into account by the national supervisory authorities when pursuing violations. Specifically, for the periods set out below, supervisory authorities should not take supervisory action if an issuer is unable to publish financial reports in a timely manner due to the COVID-19 pandemic.

In particular, ESMA expects NCAs to grant the following grace periods:

  • For annual financial statements relating to a financial year ending on or after 31 December 2019 but before 1 April 2020, for a period of two months after the statutory publication deadline.
  • For half-yearly financial reports relating to a reporting period ending on or after 31 December 2019 but before 1 April 2020, for a period of one month after the statutory publication deadline.

The annual financial statement of an issuer, whose financial year is the calendar year and which would normally have to publish its annual financial statements by 30 April 2020 at the latest, could now exceptionally only publish this until 30 June 2020 without having to worry about being penalised by the NCA.

Furthermore, ESMA encourages NCAs to generally also apply a risk-based approach in their enforcement actions in relation to the publication deadlines for financial reports, meaning that their actions should be based upon the likelihood of a loss or damage for the capital market is being incurred.

Understandably, ESMA does not provide any indication as to under which circumstances an issuer will not be able to publish its financial reports in a timely manner due to the COVID-19 pandemic. However, the following factors, for example, could be considered:

  • Forecasting difficulties with regard to the prospects in the management report or the positive going concern forecast The annual financial statement must include a management report describing the current situation of the company and the expected development of its opportunities and risks. Due to the present very uncertain economic situation and the constantly changing legal framework conditions, it can be very difficult for an issuer to assess its own situation or even to make a positive going concern forecast. A detailed analysis of the effects of the COVID-19 pandemic on the company is therefore necessary, which is not only time-consuming but may also require short-term adjustments. This may mean that a financial report cannot be finalised and published in a timely manner.
  • Auditing issues for auditors The financial reports are to be audited by independent auditors. If these auditors cannot meet auditing deadlines due to COVID-19 or if necessary auditing procedures cannot be carried out, for example at the company's premises, this can lead to delays in preparing and publishing financial reports.
  • Auditing difficulties due to short-term relief measures Numerous financial relief measures such as instant loans, one-off payments or moratoria on loan repayments are currently being offered to alleviate companies' financial shortages. If issuers make use of such support, this may have an impact on the company's accounting system. ESMA also released a public statement about this on 25 March 2020. Issuers then have to examine the effects on financial reporting, especially with regard to the recognition and measurement of financial instruments according to IFRS 9. This, too, can lead to delayed publication of financial reports.

No effect on ad hoc disclosure requirements

However, ESMA also clarifies that the obligation to immediately disclose inside information through ad hoc notifications under the European Market Abuse Regulation continues to apply.

ESMA, together with the NCAs, will continue to monitor the situation and reassess the need to amend the forbearance period that NCAs are expected to apply and to extend the grace periods.

Inform NCA promptly if financial reporting is delayed

With its statement, ESMA takes into account potential difficulties in meeting timely financial reporting requirements in the context of the COVID-19 pandemic. Issuers are nevertheless recommended to continue to do their best to publish pending financial reports in a timely manner. If difficulties in meeting the deadline become apparent, the competent NCA (in Germany: BaFin) and the investors should be informed as soon as possible.

Ad hoc notifications concerning material effects on key financial figures or published forecasts not only, but in particular due to the COVID-19 outbreak must continue to be published without delay applying the principle of prudent accounting.