The European Single Electronic Format (ESEF) has been under development at the European Securities and Markets Authority (ESMA) for a number of years but reached the final stage of approval as a ‘Regulatory Technical Standard’ (RTS) in May 2019. The ESEF results from the 2013 amendment to the Transparency Directive and is aiming to “make reporting easier for issuers and to facilitate accessibility, analysis and comparability of annual financial reports”.
What format?
The ESEF mandate specifies an XHTML version (a variant on HTML, the standard used to build web pages) of the entire annual report is to be published, with the addition of Inline XBRL labelling for issuers with IFRS consolidated financial statements within the report. That may sound like two separate requirements but the Inline XBRL format is just XBRL tagging added into the XHTML format so that the tags and content sit in the same document. The XBRL tagging is being phased in, starting with the financial statements for the period starting on or after 1 January 2020 and so-called ‘block’ tagging of the notes two years later. As in the US, ESMA is asking preparers to create ‘extensions’ where no appropriate ‘tag’ can be found in the ESEF taxonomy (the dictionary of concepts used for XBRL tagging).
Where we are now?
Since the faculty’s webinar in July 2019 on this topic, ESEF – understanding the controversy, ESMA has updated the guidance in their ESEF Reporting Manual and published the third in a series of videos answering frequently asked questions. ESMA has also started the newly defined process to update the ESEF Taxonomy, which is worth considering in more detail.
Accounting standards change and therefore the XBRL taxonomies representing them do as well. The ESEF taxonomy is based on the taxonomy produced by the IFRS Foundation to support electronic reporting. The IFRS Taxonomy is updated alongside the Standards but an annual compilation is also produced around March each year. ESMA then has to update the ESEF taxonomy as written into Law (the RTS), translate the taxonomy so that it can be read in 23 European languages and publish the updated XBRL files. They aim to complete all that before the end of each year so we’re expecting to see an ESEF Taxonomy 2019 around the time this article goes to press.
How to implement ESEF?
The two most commonly used approaches to implement the requirements are usually described as “bolt-on” and “integrated”. The first “bolts” a tagging process and conversion to Inline XBRL onto the end of the existing reporting process. This results in minimal disruption but does extend the time needed to prepare the report. The “integrated” approach builds the XBRL into the reporting process, often in a so-called “disclosure management system”. This approach can result in some process change (or improvement) but does not generally add to the time taken. Either way the end result is an Inline XBRL financial report.
What about the ‘B’ word?
The ESEF is a EU regulation and therefore whether the requirements are implemented in the UK will depend on the outcome of Brexit negotiations. The Financial Conduct Authority, the authority responsible for setting the UK specific rules, recently published its Quarterly Consultation Paper No.25 and included changes to Disclosure Guidance and Transparency Rules related to ESEF. Those updates are qualified by a note that the new provision “caters for a scenario where the UK remains subject to EU law on 1 January 2020”.
Given the latest Brexit extension to 31 January 2020, it is worth companies being prepared. Electronic reporting, using XBRL, is increasingly common and we will see the Inline XBRL format used by peer companies across Europe. Spending a bit of time getting to know the requirements and approaches could save some time and stress as the Brexit process continues to eat into potential implementation time.
About the author
Andromeda Wood is senior director of data modelling at Workiva
