4 tips to help you prepare for ESEF
First published on Financille Management Netherlands, 14 November 2019, by Bart van Praag, General Manager, EMEA at Workiva
The European Single Electronic Format (ESEF) - a regulation of the European market regulator ESMA - becomes mandatory from the 2020 financial years. Listed companies must therefore submit the first ESEF reports in 2021. The finance and compliance departments that think this is a far-from-their-bed show may be disappointed. That is why I would like to share four things that you will already have to do to ensure that your organization is ready for the new ESEF requirement.
First a short summary of what's going on. The ESEF is a new regulation starting in the 2020 financial year that requires companies in regulated markets in the EU to use a single electronic data format when drawing up their annual financial reports. The aim is to prepare financial reports that are machine-readable and easier to find. For some 5,300 EU companies, this means that they must use the global open source XBRL format for electronic data reporting when preparing their financial reports.
Organizations that think they will be able to look at what they must meet in the course of next year can sometimes cut themselves off. To prevent that bleeding, there are certainly four things that you need to take a close look at now, so that you can enter the ESEF era without pain.<?p>
1. Get everyone on board
Now is the time to take a good look at how the ESMA mandate changes your reporting processes. But also the time to ensure that everyone in your financial or compliance team has the right skills needed for this new method of reporting. For example, are you confident that you are able to understand and review the tagging? In addition, compliance teams can use this time to get everyone on board to understand the new format and how it affects them.
Financial reporting has been the same for years - do not underestimate the potential disruption that this new legislation and new timeline can cause.
2. Think about a test run
The final version of the ESMA taxonomy 2020 is expected to be published before the end of this year and then updated annually in accordance with the IFRS taxonomy. It is advisable to consider a dry run to test your workflow after the ESEF taxonomy has been updated. By doing a dry run, most tags will roll through to the moment that the ESEF becomes mandatory.
Remember: it's digital first. The PDF must be generated from the same source to prevent misinterpretations. Think about using a solution that allows you to do this at the same time.
Examine your responsibilities this quarter. By understanding what is expected of you, you make better decisions about how to proceed.
3. Discuss the design requirements and possibilities
You may be supported by a design agency in the design of your financial annual report. Talk openly with this agency about the coming changes. Investors are used to receiving a well-designed PDF version of the report. Therefore, discuss all your design requirements and design options now to prevent disappointment. If you start using a tagging service - which you screw into your traditional workflow - the reporting timeline will be drastically shortened. Make sure everyone in the team knows this. We offer the possibility to produce a designed XHTML document that looks like the PDF of the report that investors expect from you.
Whichever route you choose, make sure your final report meets the guidelines of your brand.
4. Determine your preference: tagging service from third parties or a software solution
Use the coming months to decide whether you want to use an external tagging service or a software solution.
By outsourcing your iXBRL to a tagging provider, you do not outsource your responsibility for the decision on the tags. The Executive Board and Supervisory Board must understand the taxonomy and agree with the decision of the tag and / or the use of an extension. Since it is necessary to revise and sign off the tags, it makes sense for the board to be involved in the decision-making process from the start.
Software solutions are designed to make tagging easy.
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