An Update on the European Standard Electronic Format (ESEF)

Written by: Hugh Wallis, Director of  Regulatory Analysis

There has been a lot of change in the regulatory reporting air recently and so, with the change of seasons from autumn to winter here in the Northern Hemisphere, it’s a good time to look at a very big change that is coming in Europe for companies that file annual financial reports to their national regulators.

The European Securities and Market Authority (ESMA) announced that starting with the first annual reports after January 1st, 2020 they will require all annual reports from European firms in the EU (European Union) and the EEA (European Economic Area) to be produced using Inline XBRL (also known as iXBRL).

In August 2017, only six weeks after acquiring the Cognos Disclosure Management products from IBM, Certent was chosen to participate in a field test run by ESMA to help determine feasibility of this directive and evaluate their approach. Five major companies successfully used Certent CDM to tag recent annual financial statements and produce Inline XBRL documents according to ESMA’s requirements. Some of the resulting Inline XBRL statements are available on ESMA’s website and more are expected to be added in the next month. ESMA also produced a video summarising the results of this field test. The participants found the test to be of great use to gain familiarity with what will be required when the mandate goes live with 40% indicating a positive and 30% very positive satisfaction with the results. Further information on design, outcome, and conclusions of the field tests are included in the ESMA Field Tests Report in the Final Report on the Regulatory Technical Standards (RTS) on ESEF as Annex IV.

Inline XBRL is an extension of the original XBRL standard that allows the structured data XBRL tags to be included behind the scenes in a human readable format displayed in a browser instead of being in a separate document. The structured data, which can easily be processed by analytical tools, are closely tied to the numbers and text presented to the human reader, thereby ensuring that the same information is communicated to both audiences. Just this week ESMA published the RTS for this mandate. This will be submitted to the European Commission, who then have three months to endorse the technical standard.

As ESMA proceeds towards full implementation of this mandate, they have created a draft XBRL taxonomy that is an extension of the base IFRS taxonomy published by the International Accounting Standards Board. This will be updated over the next few months by ESMA after gathering feedback and testing from the industry. According to the ESMA page on the Eurofiling website, they are also waiting for work being done by XBRL International’s Entity Specific Disclosure Task Force before they finalise their taxonomy.

In the Final Draft RTS ESMA has published a list of all the elements they plan to include in the taxonomy, however the final taxonomy is not yet available and there is no announced publication date for it. At the recent XBRL Data Amplified conference in Paris, ESMA announced that the taxonomy will include labels (short text descriptions of reported concepts) in every EU language. The two additional EEA languages (Norwegian and Icelandic – Liechtenstein uses German which is an EU language) are not included since ESMA expects the local regulators in those countries to provide them.

In addition, ESMA has drafted filing rules outlining a framework to help drive the process that filers must follow when they extend the taxonomy to match their own reporting format. ESMA has imposed some limits on the type of extension that will be permitted to help ensure that reports from different companies are easier to compare. In particular, they have introduced the concept of anchoring whereby extension elements must be connected in specific ways to the elements in the base taxonomy and the extender must clearly identify the nature of that connection using standard XBRL techniques. This is expected to avoid some of the criticisms that have been leveled against other XBRL based reporting regimes that allow largely unfettered extensions to be created by the filers.

Initially the Primary Financial Statements (statement of financial position, profit and loss and other comprehensive income, changes in equity, and cash flow) will be required to have every number individually marked up with XBRL meta-data. In the notes to the financial statements entire sections can be marked up with a single tag (i.e., block tagged) which reduces the effort required quite significantly.

Companies should be starting to plan now for this requirement and a number of Certent CDM clients are already ahead of the curve. Learn  how Certent CDM can make easy work out of financial and regulatory reporting.