The COVID-19 crisis has led the Financial Conduct Authority to extend the deadline for companies to comply with European Single Electronic Format requirements
The deadline for UK companies to comply with new rules on electronic tagging for consolidated accounts is set to be extended by another year, under proposals from the Financial Conduct Authority (FCA). The delay is intended to ease the burden on companies dealing with the impact of the COVID-19 outbreak.
The European Single Electronic Format (ESEF) was introduced to help investors, analysts and others analyse and compare machine-readable company accounts more readily, making capital markets more efficient. It will apply to all companies subject to the Transparency Directive 2013. Principally, this means issuers of securities admitted to trading on a regulated market in the EU, which in the UK includes the London Stock Exchange’s Main Market, but not the Alternative Investment Market (AIM).
In the UK, the ESEF was due to be mandatory for annual reports for accounting periods starting 1 January 2020 or later, including tagging of the primary statements within consolidated financial statements. Tagging was due to be extended to the notes to the accounts for periods starting 1 January 2022 or later.
The FCA is proposing that these deadlines are pushed back by a year, so that ESEF for primary financial statements will be mandatory for accounting periods starting 1 January 2021 onwards and, for the notes, for periods from 1 January 2023 or later.
The FCA says: “The exceptional circumstances of the coronavirus crisis have already put significant pressures on issuers. In this context, and in line with our other recent actions to relieve burdens on issuers, our proposed changes to the ESEF application timetable will allow issuers to focus on their more immediate and significant priorities.”
The FCA makes it clear that companies may choose to introduce ESEF tagging before it becomes mandatory. At the time of writing, the consultation was due to conclude on 28 August 2020.
Meanwhile, the ESEF taxonomy has been updated. ESMA, the European Securities and Markets Authority, uses a taxonomy for tagging consolidated statements using Inline eXtensible Business Reporting Language (iXBRL). The latest ESMA taxonomy (applicable to accounts for periods beginning in 2021) was published in June 2020.
For those who intend to implement ESEF to 2020 reports, regardless of the outcome of the consultation, Sally Baker, Technical Manager, Financial Reporting Faculty, ICAEW, advises: “Be prepared. Implementing the ESEF mandate will be a smoother process if appropriate preparations are in place. Start by being familiar with the requirements of ESEF and how your reporting processes might need to adapt to achieve compliance.
“Work alongside your software provider and other agencies involved in the logistics. Also, use the resources that are available to support implementation, for example the ESMA website and the resources at icaew.com/ukregulation.”
Those preparing accounts for entities in EU jurisdictions other than the UK should check whether implementation of ESEF has been delayed or whether the new requirements will apply.
ESMA has published an updated Reporting Manual on ESEF and an example set of accounts showing ESEF in practice, both of which are available via esma.europa.eu
The UK government has also clarified that accounts for UK-incorporated issuers will not need to be tagged before they are signed off by the directors, and that tagging will not need to be considered when the directors affirm that the accounts present a true and fair view.
Baker says the clarification is welcome and addresses “a potentially grey area”. Despite the delay, ESEF is still on the horizon, and those preparing accounts for the entities affected will need to ensure they are up to date with ESMA’s requirements.
The FCA consultation paper “Delay to the implementation of the European Single Electronic Format” can be viewed at the FCA website by searching for the document name. The FCA Handbook has also been updated at handbook.fca.org.uk.