From 1 January 2020, issuers with listed securities in EU regulated markets will be required to prepare annual financial reports (AFRs) in line with the European Single Electronic Format (ESEF). These changes will impact thousands of companies across the EU and have the potential to change the reporting landscape in Europe.
In December 2017, the European Securities and Markets Authority (ESMA) released its final draft Regulatory Technical Standard (RTS) with respect to the ESEF, which outlines the framework for how issuers should prepare their AFRs in an electronic reporting format.
According to the RTS, all AFRs should be prepared in XHTML, which is a stricter version of HTML, which is used to create web pages.
The RTS also specifies that an AFR that contains IFRS-consolidated financial statements should be labelled with XBRL tags, which can then be embedded in the XHTML file using Inline XBRL (iXBRL). It’s worth noting that the ESMA will use the ESEF taxonomy, which will essentially be an extension of the IFRS taxonomy issued by the IFRS Foundation.
Issuers within scope of the ESEF will have to apply the new electronic reporting format when it comes to any AFRs with financial statements that start on or after 1 January 2020.
For the first two years that the ESEF will be in effect (that is, until 2022), only the primary financial statements must be marked up with XBRL tags. From 2022 onwards, detailed XBRL tagging will be required for the entire set of consolidated financial statements, meaning that the notes will have to be block tagged.
In many ways, there are a lot of positives that the ESEF can bring to the reporting landscape in the EU. For instance, financial statements should become easier to compare as a result of the new electronic reporting format, which will provide greater investor protection.
Additionally, the ESEF should allow investors and other users of financial statements a chance to compare financial information between companies, even where those financial statements have been prepared in different languages, thanks to the use of XBRL taxonomies.
While the ESEF clearly has its advantages, the fact is that companies that are affected by it will need time to review their reporting processes and decide how best to adapt. This is particularly the case in the UK, where it is not yet fully clear how the ESEF will apply given ongoing Brexit negotiations.
What’s more, even if the ESEF, or an equivalent, is applied in the UK, there is still the question of how to conform to its reporting requirements. In the UK, companies are required to file their accounts and tax returns in iXBRL to HMRC, using a taxonomy different than the proposed ESEF taxonomy.
As such, it seems that a company’s accounts would have to be prepared using two different taxonomies as the regulations currently stand – one to submit accounts with Companies House and HMRC, and the other to file under ESEF. As such, it may take time to get such reporting systems in place, and companies would do well to take the time now to ensure that they will be able to comply with the ESEF taxonomy when it is required.
It may be worthwhile reading the RTS in full in the first instance to see whether your company could be impacted by the upcoming changes. If you have any questions about your future reporting obligations, reach out to us for advice. We’d be happy to help.
If you’re an organisation looking for a partnership with a vendor to fulfil obligations for clients of your own, get in touch with us for more information on what DataTracks can do for you; write to us at email@example.com.
With over thirteen years of experience working with companies across the world to provide affordable, high-quality, and efficient reporting solutions, DataTracks is an official member and contributor in a working group organised by XBRL Europe for ESEF. We work with the most important regulators in the world, helping organisations file with authorities including ESMA, EBA, EIOPA, and more in the EU, HMRC in the UK, and the SEC in the US. For more details on how our reporting services can benefit your business, write to us today.