The European Single Electronic Format (ESEF) aims to simplify financial reporting for listed companies in the EU and improve the usability and comparability of annual financial reports. Besides, it accelerates the shift to digital accounting in Europe.
This article looks into the reporting requirements, benefits, and impact of ESEF on auditors and accountants.
What is ESEF?
The European Single Electronic Format (ESEF) is an electronic reporting format developed by ESMA. From 1 January 2020, all companies listed on EU regulated markets must prepare their annual financial reports according to the requirements established in the ESEF Regulation.
What are the ESEF requirements?
Under the ESEF Regulation, issuers must meet the following requirements for compliant annual reports.
- Prepare their annual financial reports in XHTML, a human-readable format that allows the files to be opened and viewed using a web browser.
- Tag IFRS consolidated financial statements using XBRL to make the tagged disclosures structured and machine-readable.
- Use the Inline XBRL technology to embed XBRL tags into XHTML annual reports to ensure that the document is both human and machine-readable.
- Tag IFRS consolidated financial statements using the latest ESEF Taxonomy. The ESEF Taxonomy builds on the IFRS Taxonomy and is annually updated.
- To the extent possible, use only the elements set out in the ESEF taxonomy to tag disclosures. Companies shouldn’t create extension taxonomies unless none of the core taxonomy elements can accurately represent the meaning of a disclosure.
- Fully tag primary financial statements such as balance sheets, income statements, cash flow statements, and statements of shareholders’ equity.
- Tag each section containing notes to IFRS consolidated financial statements using single taxonomy elements.
To help companies prepare their ESEF-compliant annual financial reports, ESMA published the ESEF Reporting Manual and ESEF Taxonomy on their website.
What are the benefits of ESEF?
ESEF enhances transparency for analysts, investors, and other stakeholders by making it easier to access, analyze, and compare data in EU annual financial reports.
- Accessibility: You can readily find and access all ESEF-compliant annual financial reports at https://filings.xbrl.org/ or via national databases (Officially Appointed Mechanisms).
- Comparability: The combined use of XBLR tags and ESEF Taxonomy allows computers to easily compare annual reports regardless of their language, structure, and terminology.
- Analysis: Since ESEF annual reports are machine-readable, analysts and investors can perform automated analyses of financial information with the help of digital tools.
How does ESEF impact accountants?
Accountants responsible for preparing the annual financial report will need to adopt new software that enables the creation of XHTML reports and the tagging of financial data using iXBRL.
While some accountants see the new requirements as a burden, others recognize the opportunities they create — from reduced workloads to more insightful annual reports.
The best ESEF reporting tools provide integrations with the systems accountants already use. Therefore, they can automatically import financial data from ERPs or files in different formats.
Automatically populating annual reports eliminates human errors, saves accountants valuable time, and allows them to focus on analytical work instead. In turn, this adds extra value to the annual financial reports.
Some of the best ESEF reporting tools are:
- Workiva
- Certent
- CCH Tagetik
How does ESEF impact auditors?
Under European law, auditors need to examine whether the client’s financial statements comply with the ESEF requirements.
Specifically, they have to check that the financial information is tagged using Inline XBRL and with the correct elements of the core taxonomy. When extension taxonomies are created, auditors must also ensure that there is a legitimate reason for using them.
Similarily to accountants, auditors will also need to rely on digital tools to assess annual reports drafts. The software will help them identify validation issues, calculation inconsistency errors, and inappropriately hidden tags.
Examples of review software for auditors include:
- AMANA XBRL Auditor
- IRIS xAudit
- Interstage XWand Toolkit
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