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European Single Electronic Format (ESEF): What You Need to Know

Friday, November 23, 2018 - 10:30
European Single Electronic Format (ESEF): What You Need to Know

The European Single Electronic Format (ESEF) is the electronic reporting format in which issuers on EU regulated markets will prepare their annual financial reports from January 1, 2020. Today, issuers publish their annual financial reports as press releases or in PDF format, so why the new format requirement?

PDF documents are widely accessible and readable to the human eye. However, in our fast-paced environment there are higher demands for automated analysis and comparability of financial figures. And this is where the PDF format has its limitations.

The ESEF aims to address this and further help harmonizing transparency requirements of issuers across Europe.
 

How is ESEF different than PDF?

The ESEF uses XBRL tags (XBRL is short for eXtensible Business Reporting Language). It provides the ability to tag the content of financial tables in line with a taxonomy. And as all issuers are required to use largely the same taxonomy, based on International Financial Reporting Standards (IFRS), financial data is described uniformly and becomes both verifiable and comparable, even across different languages.

XBRL.org* provides a nice analogy: “The change from paper, PDF and HTML based reports to XBRL ones is a little bit like the change from film photography to digital photography, or from paper maps to digital maps. The new format allows you to do all the things that used to be possible, but also opens up a range of new capabilities because the information is clearly defined, platform-independent, testable and digital.”

In order to maintain readability to the human eye, the ESEF will actually be an XHTML format (the format that every web browser can display) with the XBRL tags embedded using the iXBRL (inline XBRL) technology.

Instead of the technical terms, let’s have a look at an example: viewers can click any number within the financial table and an iXBRL viewer to the right displays further details about this specific number, providing clear context and a relation to the taxonomy.

1 Example from ESEF field test https://www.esma.europa.eu/field-test-esef

1 Example from ESEF field test https://www.esma.europa.eu/field-test-esef

 

Who is responsible for preparing the ESEF format?

The responsibility of preparing annual financial reports rests on the issuers’ shoulders.

There are examples of larger companies that have conducted projects to implement XBRL throughout their entire financial reporting stream. And there is no question that XBRL provides long-term value and high synergy effects if it is implemented consistently into the backbone of the company.

However, these projects can be very costly and require specialized resources with in-depth knowledge on the accounting and technical sides.

Another way to create the ESEF format for companies without access to these resources might be the use of an external service provider.

In any case, companies should expect a higher start-up cost for the first year as the initial XBRL tagging has to be done, and systems, people and workflows have to be put in place.

To make the transition easier, the ESEF will require issuers to only tag the primary financial statements, while block tagging is allowed for the notes. After a transitioning period of two years, the entire set of the IFRS consolidated financial statements will have to be tagged, including a detailed tagging of the notes.

 

How can you prepare for ESEF requirements?

Companies should start to think about how to comply with the new requirement. There are a variety of approaches that should be considered:

  • Creating the ESEF in house allows you to limit the amount of insiders; gives high flexibility but requires internal resources, knowledge and competence.
  • Creating the ESEF using an external provider allows you to use external resources with existing knowledge and experience, but might constitute a duplication of efforts, as the ESEF is then created in parallel to the existing way of preparing financial reports.
  • A mix of an internal and external approach is possible and might make sense for some companies.

 

What are we doing?

We have helped issuers create and file their financial reports in XBRL format with the SEC Edgar system in the US since the introduction of this requirement in 2008. Our GlobeNewswire platform offers established workflows to process unpublished information in a safe and proven environment.

Naturally we take this experience to the table when discussing the practicalities of the new ESEF implementation with European Authorities like ESMA and the various storage mechanisms (OAMs) our systems are integrated with in Europe.

Talk to our teams for more information about regulatory filing services, including XBRL. Speak with your account manager or contact us via email at [email protected]. You can also follow us on Twitter @WestCorpDC.

 

 

 

 

 

*Source: https://www.xbrl.org/the-standard/what/an-introduction-to-xbrl/, Copyright © 2002 XBRL International. All Rights Reserved. http://www.XBRL.org/legal

 

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