How Easy Is the Move from ESEF to UKSEF

Project leaders from finance teams of UK PLCs implementing the European Single Electronic Format (ESEF) are also considering a related taxonomy released by the FRC – UK single electronic format (UKSEF). The main points of consideration revolve around which of the two taxonomies they should use for the 2021 Annual Report submission and the level of effort to implement UKSEF.

ESEF to UKSEF

What is UKSEF?

The UKSEF taxonomy is an extension of ESEF submission for the FCA. This extension is done to align with Companies House filing requirement that covers:

Disclosures surrounding the new Streamlined Energy and Carbon Reporting (SECR) requirement
The company’s registered number and the period end date

Key Differences Between ESEF and UKSEF

Regulatory Framework

ESEF: Governed by the European Securities and Markets Authority (ESMA), ESEF applies to companies listed on regulated markets within the European Union. The framework is designed to enhance transparency and comparability of financial reports across EU member states.
UKSEF: Post-Brexit, the UK has established its own regulatory framework under the Financial Conduct Authority (FCA). UKSEF is tailored to meet the specific regulatory requirements of the UK, ensuring that financial reports of UK-listed companies remain consistent and transparent.

Taxonomy and Tagging

ESEF Taxonomy: The ESEF taxonomy is based on the International Financial Reporting Standards (IFRS) taxonomy. It provides a standardized way to tag financial information, enabling consistency and comparability across EU companies.
UKSEF Taxonomy: While similar to the ESEF taxonomy, UKSEF may include UK-specific elements and adjustments to better align with national regulatory requirements. Companies must stay updated on these changes to ensure accurate tagging and compliance.

Submission and Reporting

ESEF Submission: Under ESEF, companies must submit their annual financial reports in XHTML format with embedded iXBRL tags. This submission is made to the relevant national competent authority within the EU.
UKSEF Submission: For UKSEF, companies will follow the FCA’s guidelines for submitting financial reports. The submission format remains XHTML with embedded iXBRL tags, but the process and specific requirements may differ slightly from those under ESEF.

Compliance and Enforcement

ESEF Compliance: Compliance with ESEF is monitored by ESMA and national competent authorities within the EU. Companies must ensure their reports meet the detailed tagging and formatting requirements specified by ESMA.
UKSEF Compliance: The FCA oversees compliance with UKSEF standards. Companies need to ensure their financial reports adhere to the FCA’s specific guidelines, which may include additional requirements or adjustments compared to ESEF.

Transition and Implementation

ESEF Implementation: Since its introduction, ESEF has required companies to adapt their reporting processes and systems to meet new digital reporting standards. This includes training staff, updating software, and validating reports to ensure compliance.
UKSEF Transition: The transition to UKSEF requires UK-listed companies to adjust their processes from ESEF to UKSEF standards. This involves understanding new regulatory requirements, updating software tools, and ensuring all financial data is correctly tagged according to the UKSEF taxonomy.

Impact on Stakeholders

ESEF Stakeholders: ESEF aims to benefit a wide range of stakeholders, including regulators, investors, and analysts, by providing standardized and easily comparable financial data across the EU.
UKSEF Stakeholders: UKSEF continues this objective within the UK context, ensuring that financial data remains transparent and comparable for UK stakeholders. The tailored approach aims to address specific needs and regulatory expectations within the UK market.

Technology and Tools

ESEF Tools: A variety of ESEF Reporting Software solutions have been developed to assist companies in meeting ESEF requirements. These tools help with the tagging, validation, and submission of financial reports in compliance with ESMA standards.
UKSEF Tools: Similar tools will be necessary for UKSEF compliance, with updates or new versions designed to meet the FCA’s requirements. Companies may need to invest in or upgrade their current solutions to ensure seamless compliance with UKSEF standards.

By understanding these key differences, companies can better navigate the transition from ESEF to UKSEF, ensuring that their financial reporting

Should I adopt UKSEF?

Although still voluntary, stakeholders will have visibility to new digital information through ESEF. It seems logical to extend it to cover the SECR disclosures to help digitally automated analysis. Similarly, it is also prudent to file complete information in the annual report at Companies House.

How easy is it to adopt UKSEF?

Implementation of ESEF came with a host of challenges relating to process, solution styles, timelines, approvals, review controls, and validation. These are interrelated and are best planned by teams well in advance.

In comparison, the adoption and implementation of UKSEF is relatively straightforward, given that everything required by ESEF is included within the UKSEF taxonomy, making it a viable option for UK public listed companies.

All of the ESEF rules are also included in UKSEF, enabling information to be tagged in the same way as financial statements.
A UK company’s registered number and period end date makes it easier for an annual report to pass through the digital gateway at Companies House.
In the EU, auditors are required to check and provide their opinion on the ESEF file. In the UK, however, the UK Department for Business Energy & Industrial Strategy (BEIS) has said that it is not required for the ESEF Tagging file to be audited – that the auditors and directors had to sign-off only on the ‘content’, not any tags.

However easy it seems, there’s no one-size-fits-all solution for anything in reporting. The best process for you will depend on your company processes, goals, audit requirements, and more. We, Datatracks, have spent over ten years trialing and fine-tuning our approach and have a range of options that meet your needs – for more information on UKSEF/ESEF or to find a solution for any of your reporting challenges, get in touch with us.

Frequently Asked Questions in ESEF to UKSEF Transition

What is the main difference between ESEF and UKSEF reporting?

The main difference lies in the regulatory framework. ESEF is governed by the European Securities and Markets Authority (ESMA) for EU countries, while UKSEF is regulated by the Financial Conduct Authority (FCA) specifically for the UK post-Brexit. This means there may be UK-specific adjustments in the taxonomy and reporting requirements under UKSEF.

How do the taxonomy and tagging requirements differ between ESEF and UKSEF?

Both ESEF and UKSEF use a taxonomy based on the International Financial Reporting Standards (IFRS). However, UKSEF may include specific elements and adjustments to better align with UK regulatory needs. Companies need to stay updated on these changes to ensure their financial reports are accurately tagged and compliant.

What are the submission format requirements for UKSEF compared to ESEF?

Both ESEF and UKSEF require financial reports to be submitted in XHTML format with embedded iXBRL tags. The key difference is the submission process and specific guidelines set by the FCA for UKSEF, which may vary slightly from those of ESMA for ESEF.

How can companies prepare for the transition from ESEF to UKSEF?

Companies can prepare by staying informed about the FCA’s UKSEF guidelines, training their financial reporting teams, updating their reporting software to accommodate UKSEF requirements, and consulting with XBRL and regulatory compliance experts. Conducting test filings and using validation tools can also help ensure a smooth transition.

What challenges might companies face in transitioning from ESEF to UKSEF?

Challenges may include adapting to new UK-specific regulatory requirements, updating financial reporting software, training staff on the new standards, and ensuring accurate and consistent tagging of financial data. Regular communication with regulatory bodies and industry experts can help overcome these challenges.

Are there any benefits to transitioning from ESEF to UKSEF for UK companies?

Yes, the transition to UKSEF ensures that UK-listed companies remain compliant with national regulations post-Brexit. It also maintains the transparency and comparability of financial reports, benefiting stakeholders such as regulators, investors, and analysts within the UK market.