EU Commission publishes ESEF Regulation

According to ESMA, annual reports should be made comparable across Europe. The solution approach: ESEF – European Single Electronic Format using the IFRS Taxonomy. Therefore, companies can expect a major conversion effort.

Starting from January 2020, annual financial reports shall be prepared in a uniform electronic format – and now the corresponding draft Regulatory Technical Standard (RTS) was published.

Based on the Transparency Directive from 2004, issuers on EU regulated markets have to publish their annual financial reports. So far, it was enough to publish the information as a PDF or as an HTML document because of the lack of a defined format.

Purpose: More Transparency and Comparability

In the 2013 Transparency Directive, the obligation to prepare annual financial reports in a single electronic reporting format was adopted – the so-called European Single Electronic Format (ESEF). The RTS shall apply to annual financial reports for financial years beginning on or after 1 January 2020.

The European Securities and Markets Authority (ESMA) was assigned to develop RTS to specify this electronic reporting format.

On 29 May 2019, the Delegated Regulation (EU) 2018/815 was published by the European Commission in the Official Journal of the European Union after the expiry of the opposition period. The draft developed by ESMA has thus been accepted and will officially enter into force as the "ESEF Regulation".

Inline Extensible Business Reporting Language as Electronic Format

After about four months of public consultation and field testing, ESMA published the final draft RTS for the implementation of ESEF on 18 December 2017. ESMA proposes in it to prepare the report in iXBRL (Inline Extensible Business Reporting Language) and to publish it in XHTML (Extensible Hypertext Markup Language).

As of 1 January 2020, the primary components of the financial statements (balance sheet, income statement and other comprehensive income, changes in shareholders equity, cash flow statement) as well as basic company information such as the location and purpose of the company would have to be allocated initially. From 1 January 2022, the ESEF-reporting requirement would be extended including extensive disclosure in the form of a text block associated with an element of the taxonomy.

Two-year Transitional Period Provided to Facilitate the Introduction of ESEF to Businesses

Issuers of EU Member States have the right to publish the overall annual accounts in electronic format if the taxonomy is provided by the EU Member State.

Major Conversion Effort for Companies

For companies, the change in the Transparency Directive results in a considerable conversion effort. On the one hand, the core taxonomy has to be adapted by the company and the Tagging/Mark-up process has to be completed. On the other hand, regular changes in IFRS and thus in the taxonomy represents an ongoing challenge for companies. Furthermore, it is necessary to implement the iXBRL-Format in the system.