As listed companies with calendar year ends emerge from the annual reporting season, there's a new rule to add to the corporate reporting to-do list. Those listed on EU regulated markets need to prepare their 2021 annual report in a new technical format and apply machine-readable tags to IFRS consolidated data in the primary financial statements. It’s called the European Single Electronic Format and is commonly referred to as “ESEF”.
The introduction of ESEF will make your data easier to consume electronically. ESEF doesn’t prompt new information to be produced, it’s about making existing information available in both human-readable and machine-readable forms. It means that investors, regulators and other stakeholders will be able to compare your financial statements with those of your peers across Europe without rekeying information. Or needing a translator.
In the language of regulators, the requirement stems from the amended Transparency Directive. The rules apply to both equity and debt. And they apply in the UK: the Financial Conduct Authority (FCA) is implementing ESEF and has added DTR 4.1.14 to the Handbook.
In the language of technologists, ESEF uses Inline XBRL (iXBRL), meaning XBRL tags are embedded in XHTML code in a single file. The XHTML allows the preparer to retain control of the presentation, determining how the annual report looks. The XBRL allows the preparer to describe the tagged information to a machine, determining how the data is consumed.
It’s time for annual financial reports to become fit for the digital age. In some ways, the evolution of the wristwatch is a reasonable comparison. The analogue wristwatch told time, just as a paper-based annual report told a company’s story. In both scenarios, some examples were simple, others were highly-designed and optimised for a great look and feel. There may have been differences in complexity or perhaps the level of precision, but in general they offered the functionality the user expected. With the emergence of simple digital formats, watches became available with a back-light. Similarly, annual reports became available as a pdf. The latest technical format, ESEF, goes a step further by making the consolidated data available in a machine-readable format. ESEF is a game-changer that may do for annual financial reports what the latest “wearable technology” has done for wristwatches. Easy electronic access to freely-available relevant data at the touch of a button offers new possibilities and may also attract new users.
This article hasn’t scraped the surface of the technical detail that comes with the implementation of ESEF. As a listed company, you’ll need to become familiar with a new taxonomy and new rules. You’ll need to create your own tags for unique entity-specific disclosures. And you’ll need to apply a new technical mechanism called anchoring to show where your tags would connect to the core ESEF taxonomy (based on the IASB’s IFRS taxonomy). There’s also the prospect of an assurance requirement.
We provide a comprehensive range of services which can help kick off your ESEF journey, including eLearning and blended training, a tailored ESEF blueprint mapping report and a controls assurance review. For more information on how we can help your business navigate this important regulatory mandate, please get in touch.