The European Single Electronic Format – what you need to know now
Kay Kayachith discusses ESEF, the new annual report filing requirements coming into effect in 2020. Are you ready?
Despite the uncertainty surrounding Brexit, companies should start preparing now for the digitisation of corporate reporting. In 2013 the EU called for the European Securities and Markets Authority (ESMA) to set rules on the ‘harmonisation of a single electronic reporting format’ for annual reports. The objectives of the provision were to make reporting easier for companies and to ‘facilitate accessibility, analysis and comparability’ of annual reports.
What is it?
It is a new piece of legislation called the European Single Electronic Format (ESEF) set by ESMA which is meant to drive change in the digitisation of annual reporting. Most people still tend to think of the annual report as a paper document, even in PDF form, but that will soon change. By 2020, companies will need to start reporting their financials in a single electronic format that is both machine and human readable.
The new requirements are:
- iXBRL tagging – For the first two years, companies will need to tag their primary financial statements (balance sheet, income statement, cash flow statement) and then this is extended as ‘block tagging’ for the notes. Think of iXBRL as a “bar code” for financial information. Companies preparing their consolidated annual reports under IFRS (or an equivalent GAAP) will need to include iXBRL tagging using the International Accounting Standards Board’s taxonomy.
- XHTML reporting – The ‘document of record’ for companies will now be digital and prepared as an XHTML report (a format similar to web pages). This means the report can be opened with standard web browsers and displayed as intended by the company, making it more user-friendly and accessible by the general public.
When will it come into effect?
Whether you are prepared for it or not, the regulation will come into effect on January 1, 2020, impacting over 5,500+ listed European and UK companies.
How can companies prepare now?
- Build an understanding of the technical standard for iXBRL (inline XBRL, which is both machine and human readable) – understand the impact and opportunities for iXBRL
- Engage with ESMA, the FCA, FRC and others where opportunities for consultation or field-testing exist
- Develop a strategy at Board and Audit Committee level to consider how XBRL should be implemented - the flexibility, usability and cost will vary depending on the strategy adopted
- Discuss the adopted strategy with the design agency, audit firm, peers and other relevant advisers
MerchantCantos is holding an event to further explain what the requirements are, who they would impact and how companies can prepare now. Our aim is to ensure that companies are able to implement the changes as efficiently as possible while avoiding any unnecessary compliance burdens.
Join us on 8th May for a working breakfast, during which we will share an update on the upcoming 2020 ESEF requirements, provide examples of the different solutions we have researched and impart lessons learned from others who have transitioned to XBRL reporting.
For more information, contact Kay Kayachith, Investor Communications Manager.