Ready for ESEF? The 3 points for attention
First published on Financielle Management NL by Bouku do Groot. Translated on 7 November 2020
European Single Reporting Format (ESEF) is a new, mandatory digital format for all issuers on EU regulated markets.. "The ESEF is an extension of the transparency directive, so it does not change that directive itself," says Andromeda Wood, Senior Director of Data Modeling at Workiva. "The programme will lead to greater transparency in external financial reporting," confirms Hendrik Jan Roel, CFO Albert Heijn to FM. "At AholdDelhaize, we are working on the initial preparations. We will really start in January 2020, so that we can prepare our annual accounts for 2020 in accordance with the new guidelines at the beginning of 2021," he continues.
The Netherlands Authority for the Financial Markets (AFM) explains the innovation as follows: "Issuing companies will have to prepare their annual accounts in XHTML from financial year 2020, with certain data tagged using inline XBRL. For the time being, the obligation applies only to the primary consolidated financial statements, such as the balance sheet and profit and loss account, prepared under EU-IFRS. The obligation to tag the notes to the consolidated statements will follow at a later stage. The latter will be done by means of so-called block tags," which will apply from 2022 onwards.
"The European Commission has given an opinion that XBRL is part of the annual report and should therefore be audited. At the moment the audit bodies are thinking about what this will look like," says Wood. An advantage of ESEF is its close relationship with IFRS, but this also presents an additional challenge. Because the ESEF taxonomy is embedded in law, annual taxonomy updates first have to go through the whole process. This creates a long pause between annual IFRS taxonomy updates in March and those of ESEF. "The best thing to do is to be aware of the IFRS changes and thus prepare for the ESEF change later that year," Wood advises.
Companies can go beyond the restrictions of the taxonomy by adding elements that are not included in it by default, so-called extensions. However, this is only allowed if these elements are linked to existing elements in the taxonomy, so-called anchoring. Making these anchors as well as drawing up - and adapting to the annual ESEF change - the entire taxonomy in one's own system can be a time-consuming and error-prone process and therefore requires a great deal of attention.
Cloud provider of linked data, reporting and compliance solutions Workiva demonstrated at its recent ESEF workshop that their solution automatically creates the mandatory anchors each time a user adds a new extension. In addition, Workiva stressed the importance of working with software providers who keep customers informed about updates to the ESEF taxonomy, which is published at the end of each year, and makes timely updates to its platform with the new taxonomy after it is released. Because of the rollover functionality in the Workiva platform, in the second year of iXBRL preparation, accounts are automatically tagged based on the first filing. This saves a lot of time since an organisation doesn't need to start from scratch every year.
The introduction of ESEF can have significant consequences for the internal processes of companies. Where previously the end result was often a pdf, now everything has to be done – as well? - in other formats: the iXBRL document for the submitter and XHTML for the website. "Think carefully about the impact of the XHTML requirements and tagging on your workflow," Wood cautions. "At AholdDelhaize, we see that our current reporting system is already well prepared to deploy ESEF without too much risk. I don't expect any effect on our internal reporting," says Roel. Is ESEF all right with you?
Information videos and the latest developments can be found on the ESMA (European Securities and Markets Authority) website. The ESEF Reporting Manual can also be downloaded here.
For the latest information and news, visit The Workiva Newsroom.