From 1 January 2020, issuers listed on EU regulated markets must prepare and publish their consolidated financial statements in the so-called European Single Electronic Format (ESEF). Specifically, this means that they will have to publish their annual reports in XHTML format. Furthermore, companies that prepare consolidated financial statements in accordance with IFRS will have to tag them using the XBRL format.
The aim of the ESEF is to unify consolidated financial statements within the EU and also to simplify their preparation. The individual parts must therefore be accurately marked using the XBRL taxonomy for International Financial Reporting Standards (IFRS) and published using the XHTML format (the link is referred to as iXBRL). The entire output must be machine readable and fully conform to the defined format.
The introduction of the ESEF itself will have an impact on internal processes in companies and the subsequent elaboration of documents. And not only that, but compliance with the requirements of ESMA (European Securities and Markets Authority) will be subject to verification by an auditor, who will also expand the scope of work related to the financial reporting process.
An important principle of the entire ESEF is valid marking according to defined tags and subsequent export to XHTML format (Extensible HyperText Markup Language). This format is commonly used and can be opened using any standard web browser. The individual parts in the annual report will then be marked with XBRL tags. This will allow the user to easily search for the annual report and also analyze the content of the annual report through various tools. Another great advantage of such tagging is language independence, thanks to which it will be possible to compare numerical data in the financial statements of different companies in different languages.
The European Securities and Markets Authority has developed an ESEF Reporting Manual and issued a set of ESEF taxonomy documents to assist companies in preparing. I expect these guidelines to be updated in the coming years based on practical experience.
I see as the biggest risk that it is necessary to adjust the existing processes of the companies so that it is fully realistic to deliver the outputs according to the requirements in the required time. The preparation of financial statements and annual reports takes a lot of time and approval, and a new labeling obligation is now being added. The processing itself will not take several hours, but rather days.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
