What you need to know about ESEF?

New Format Issued by ESMA for Annual Financial Reporting

As part of the constant effort to improve transparency, ESMA has issued a new reporting format – ESEF (European Single Electronic Format), for all companies listed on the stock markets in the European Union. The primary reason for introducing a new format is to:-

● Increase transparency in the EU and EEA (European Economic Area) regulated markets.

● Make financial reports comparable regardless of the format, structure, or language.

● Enable investors, public authorities, issuers, and other users of financial statements to carry out analysis of such information in a better way.

Why ESEF Reporting Matters

Enhanced Transparency: ESEF promotes a transparent reporting environment by ensuring that all listed companies follow a standardized format. This uniformity allows stakeholders, including investors, analysts, and regulators, to easily compare financial statements across different companies and markets.
Improved Accessibility: By adopting ESEF, financial reports are more accessible and easier to analyze. The reports are submitted in XHTML format with embedded Inline XBRL (iXBRL) tags, making them both human-readable and machine-readable. This dual readability facilitates automated processing and deeper data analysis.
Regulatory Compliance: Compliance with ESEF is mandatory for all EU-regulated listed companies. This requirement ensures that all relevant financial information is accurately tagged and disclosed, meeting the stringent standards set by ESMA.

Key Components of ESEF Reporting

XHTML Format: ESEF requires that annual financial reports be prepared in XHTML format, which is a web-friendly format that can be easily viewed in any standard web browser. This ensures that the reports are universally accessible.
iXBRL Tagging: Inline XBRL (iXBRL) is used to tag the financial information within the XHTML reports. These tags correspond to specific financial elements, such as revenue, expenses, assets, and liabilities. iXBRL tagging allows for precise, machine-readable data extraction while maintaining human readability.
ESEF Taxonomy: The ESEF taxonomy is based on the IFRS taxonomy, providing a standardized language for financial reporting. This taxonomy helps ensure that all relevant financial data is consistently tagged, making it easier to compare across different entities.

Preparing for ESEF Compliance

Early Preparation: Start the compliance process early to understand the rules, assess their impact, and implement necessary changes smoothly. This proactive approach helps avoid last-minute rushes and potential errors.
Use of Advanced Tools: Invest in reliable ESEF reporting software that supports XHTML and iXBRL tagging. These tools can significantly streamline the reporting process, reduce the risk of errors, and ensure that your reports meet all regulatory requirements in ESEF Tagging.
Validation and Review: Before submission, run your reports through a validator to identify and correct any errors, warnings, or calculation issues. Regular review and validation ensure that your reports are accurate and compliant.
Training and Collaboration: Train your financial reporting team on ESEF requirements and collaborate with IT, legal, and communication departments to ensure a holistic approach to compliance. Cross-functional teamwork is essential for accurate and efficient ESEF reporting.

Challenges and Solutions of ESEF

Complex Financial Structures: Companies with complex financial structures may find it challenging to select appropriate tags. Consulting with XBRL experts or using advanced tagging software can help navigate these complexities.
Frequent Taxonomy Updates: Stay updated with any changes to the ESEF taxonomy and XBRL standards. Regular training and updates from regulatory bodies can help your team stay current with these changes.
Manual Errors: Manual tagging can lead to errors. Automated tagging tools can minimize human error and improve the accuracy of tag selection.

What are the Latest ESEF Reporting Requirements?

The new format comes with additional reporting requirements which need to be complied with effect from financial years beginning on/after January 1, 2020, such as:-

● All the annual financial reports must be prepared and published in the XHTML format.

● If the annual financial reports are prepared in IFRS and have consolidated financial statements, they must also be tagged with XBRL elements to generate Inline XBRL or iXBRL iXBRL provides a standard format that is both machines as well as human-readable and is compatible with any standard web browser.

What are the Benefits of Reporting in ESEF?

● For Supervisory Bodies

The new ESEF reporting format leads to greater data transparency and comparability and allows quick as well as an accurate analysis of not only individual companies but also the entire capital market.

● For Listed Companies

The stringent quality checks and validations of the ESEF reporting format ensure a reduction in the number of reporting errors, thereby resulting in an accurate representation of the financial status of the company. The new format significantly reduces the instances of amended filing.

● For Investors

With the financial data being available in just a few clicks, the investors and shareholders can experience an efficient process of access to information quickly and comprehensively. With some of the software assuring fully validated iXBRL, investors and shareholders can rely on the data for their analysis and comparison. This is imperative, especially for financial analysis, as potential investors need an accurate picture of finances before investing in a company.

It’s Not Just About Compliance

The ESEF reporting system goes beyond compliance; it helps in increased comparability, high data quality, and greater transparency, all of which are crucial for companies.

To help issuers comply with the new reporting system, DataTracks, a renowned global leader in XBRL solutions, is offering innovative cloud-based software as well as managed services for smarter compliance reporting and disclosure management that allows its users to import Annual Report in multiple formats, including rich design PDF, and generate XHTML or iXBRL by retaining the input layout.

At DataTracks, our experts who have worked with iXBRL conversion recognize a familiar theme: smoothening the rough edges of your ESEF compliance process is your key to efficient, cost-effective filing success. Use these learnings to investigate your shortcomings – whether they relate to software, process or understanding and get ready to file your first ESEF this year! Our ESEF experts would love to hear about your learning experiences. If you are currently in the planning phase and would like to know more, please reach out to us at enquiry@datatracks.eu