ESEF – European Single Electronic Format for listed companies starting with financial statements for 2020
It will be possible to compare and utilise financial statement data of different companies better when, in the future, financial statements are reported in a single electronic format (ESEF). Retrieving and analysing data will be facilitated. Reporting in an electronic, structured format will also enable new technology, such as artificial intelligence, to be used more effectively in analysing data.
What is ESEF and to whom does it apply?
European listed companies (issuers of shares and bonds operating in regulated markets) will have to report their entire annual financial reports in a single electronic format (ESEF) starting with financial statements for 2020. The annual financial reports will be prepared in XHTML format, and IFRS consolidated financial statement data included in the XHTML document will be marked up with XBRL tags. XBRL tagging will be done using iXBRL technology (InlineXBRL).
The ESEF XBRL requirement applies only to IFRS consolidated financial statements, and it does not apply to parent companies’ separate financial statements or management reports. The ESEF XHTML and XBRL requirements do not apply to financial statement releases or half-yearly reports. Reporting of companies listed in alternative marketplaces is also outside the new reporting requirements.
Behind the new reporting requirements are the amendments made in 2013 to the Transparency Directive concerning the harmonisation of listed companies’ transparency requirements. The amendments to the Directive included the requirement for listed companies to prepare annual financial reports in a single electronic format (ESEF). As a consequence of the amendments to the Directive, the European Securities and Markets Authority (ESMA) was tasked with developing a draft Regulatory Technical Standards (RTS), which further specify the electronic reporting format. In December 2017, ESMA published the draft regulatory technical standards for ESEF. On 17 December 2018, the European Commission gave the green light on the endorsement of the RTS on ESEF delegated act, and the European Parliament and the Council have the right to express objections during a 3 month period (renewable once). On the expiry of the objection period following the Commission’s endorsement, the delegated act will become a Commission Delegated Regulation, directly binding on listed companies, in 2019. The final text (not yet entered into force) of the Commission’s legislative proposal (delegated act) sent to the Council and to the European Parliament can be accessed at this link in all official languages of the EU.
The technical implementation of ESEF is based on XHTML and iXBRL. According to ESEF plans, listed companies will have to prepare annual financial reports in XHTML format in stages starting with financial statements for 2020:
Financial statements for 2020-2021:
- The XHTML-format document will include the primary financial statements, tagged with the XBRL language in accordance with a taxonomy: consolidated statement of profit and loss and comprehensive income, statement of financial position, statement of cash flows and statement of changes in equity.
- XBRL data will be embedded into the XHTML document using the Inline XBRL (iXBRL) mechanism.
- In financial statements for 2020-2021, the notes to the consolidated financial statements, the management report and the parent company’s separate financial statement will be included in the XHTML document without XBRL tags.
Starting with financial statements for 2022:
- In addition to the primary financial statements, the notes to the financial statements must be tagged with XBRL tags. Notes will be marked up in accordance with ESEF minimum requirements as block tags, i.e. each note as a whole will be one XBRL tag, and individual line and column data within the note will not need to be tagged separately.
Structured electronic reporting with XBRL requires the use of a taxonomy. The taxonomy acts as a reporting account scheme. ESMA’s ESEF taxonomy, which is based on the IFRS Foundation’s IFRS taxonomy, will be used in the reporting of financial statements. The ESEF taxonomy includes ESMA’s own extensions to the taxonomy, e.g. for the identification of companies.
In addition to the ESEF taxonomy, companies can use and create their own extensions to the taxonomy if they cannot find in the ESEF taxonomy an accounting meaning that describes the content of a line sufficiently well. Extensions, however, must be anchored to the closest accounting meaning of the ESEF taxonomy. In practice, the new accounting meaning is linked to the existing line of the taxonomy that is closest to this accounting meaning. The use of extensions reduces, however, the comparability of XBRL format data between different companies.
Detailed tagging with XBRL is applied to primary financial statements
The consolidated primary financial statements , i.e. consolidated statement of profit and loss and comprehensive income, statement of financial position, statement of cash flows and statement of changes in equity are marked up with XBRL tags specified by the taxonomy at the same level of detail with which the primary financial statements according to IFRS are prepared.
Notes as block tags
Notes to consolidated financial statements are covered by a reduced requirement, such that notes to the financial statements are marked up with XBRL as block tags, in which case one note as a whole is one XBRL tag, and there is no need to itemise the contents of a note with separate XBRL tags. More details might be added to the reported information later, after experiences gained in use. The ESEF taxonomy includes, however, the opportunity for more detailed XBRL tagging.
The EU Commission’s guidelines on the subject are expected during the second quarter of 2019.
Currently, listed companies submit their annual financial reports as a stock exchange release attachment file (pdf) to the national central storage facility for regulated information, either as a separate document or as part of an annual report. Following the entry into force of the Commission Regulation on ESEF, the consolidated financial statements in structured format and non-structured other information, such as e.g. the report of the board of directors and the parent company’s separate financial statements, will be included in the XHTML document submitted to the central storage facility .
In Finland, the Helsinki Stock Exchange (Nasdaq Helsinki) acts as the maintainer of the central storage facility (Officially Appointed Mechanism, OAM) required by the Transparency Directive, to which listed companies submit regulated information.
Comparability of financial statement information requires detailed reporting using an XBRL taxonomy. Numerical data of financial statements can be compared or otherwise utilised across corporate and language boundaries when the numerical data has the same “name tag” in different companies and different countries, translated into each company’s own language. XBRL format information is easily transferable to different systems.
ESEF reporting permits the addition of a company’s own extensions to the taxonomy if the company cannot find in the ESEF taxonomy an XBRL tag corresponding in content to the accounting meaning of an item presented in the financial statements. A company’s possible own extensions to the taxonomy may, however, reduce the comparability of data between different companies.
It is recommended that companies assess what benefits they themselves can gain from also providing information in XBRL format to other purposes than only to regulatory reporting. Available information in XBRL format could be utilised, for example, in companies’ own sector peer analyses.
XBRL format reporting is used in many countries. The US Securities and Exchange Commission (SEC) already currently requires both US and foreign listed companies to report their financial statements in XBRL format. XBRL format information is also currently accepted by the trade register and tax authorities of a number of European countries, and XBRL is commonly used in the banking and insurance sector official reporting, including in Finland.
In Finland, the Tax Administration, the Finnish Patent and Registration Office and Statistics Finland are planning to accept financial information digitally in the future. Responsibility in Finland for maintaining the reporting code set and XBRL taxonomies for official reporting of financial information rests with the State Treasury. The State Treasury will activate companies with respect to digital official reporting of financial information.
ESMA has established a permanent working group to promote the implementation of ESEF. The purpose of the working group is to prepare the necessary additional guidance to listed companies and software suppliers for implementing the requirements of the ESEF regulatory standard. The aim is to apply the equalisation of the regulatory standard in the same way in different countries. Finland is participating in this ESMA work.
In summer 2017, ESMA carried out a field text in which listed companies’ financial statements were converted to XBRL format. The field test results and the test financial statements marked up with XBRL can be found here.
COMMISSION DELEGATED REGULATION of 17 December 2018 (not yet entered into force); the text can be accessed at this link; the European Parliament and the Council still have the right to express objections during a 3 month period (renewable once).
Follow these pages – in the future, ESMA will provide more material in the form of webinars and other guidelines.