New rules for 2020: making annual reports machine readable
28 January 2020: the rules introducing the new European Single Electronic Format (ESEF) are now in force and annual reports of EU listed companies should be prepared under the new regime.
The move to digitise financial information produced by European issuers of securities traded on EU regulated markets should make financial statements both more accessible and more comparable across the EU. The winners will be the users of financial information, especially investors, who will benefit from enhanced transparency.
The ESEF rules are derived from the 2013 amendment to the Transparency Directive and have been under development at the European Securities and Markets Authority (ESMA) for some time. They reached the final stage of approval as a ‘Regulatory Technical Standard’ in May 2019 and came into force for accounting periods beginning on or after 1 January 2020. The Financial Conduct Authority will be the responsible body in the UK for implementing the mandate and will set the UK specific rules.
Essentially, from the beginning of this year, annual reports of EU issuers must be prepared in XHTML. This format can be opened with standard web browsers and the content can be prepared and displayed depending on the issuers’ preferences. Where the annual report contains IFRS consolidated financial statements, these must be labelled with Inline XBRL tags (this is simply XBRL tagging within the XHTML format), making the labelled disclosures structured and machine readable.
To allow for structured electronic reporting using XBRL, ESMA has published the ESEF taxonomy, based on the IFRS taxonomy issued by the IFRS Foundation. The ESEF taxonomy provides issuers with a hierarchical structure to classify financial information and is available in 23 European languages.
For the first time, it will be possible to perform digital analysis across numerous reports, in different languages, with the ability to transfer numerical information into spreadsheets or databases without incurring human error.
It is worth companies being prepared, whatever transpires post-Brexit.