6 Common Questions (and Answers) About the ESMA ESEF Taxonomy
ESMA ESEF—if those eight letters make the hair on the back of your head stand up a bit, you are not alone.
We have collected six of the most common questions we have heard regarding the ESEF taxonomy, along with concise answers to help provide context and alleviate concerns. Keep this post handy for the months to come, especially as we near the mandate's enforcement date of 1 Jan 2020.
What is ESMA ESEF?
In 2013, the European Securities and Markets Authority (ESMA) was asked to specify a European Single Electronic Format (ESEF) for annual financial reports (AFRs). This initiative was part of a broader move to improve access to the information produced by listed companies.
The draft regulatory technical standard—the specifications and rules of the mandate—for the ESEF was published in December 2017 and is working its way through the European approval process.
To summarise the regulatory technical standard, the AFRs produced by ESMA-regulated companies will need to be published in XHTML format. In addition, IFRS consolidated financial statements will need to be tagged using the Inline XBRL® format.
What is the ESEF taxonomy?
XBRL® uses taxonomies—dictionaries of concepts—to specify the tags that preparers will need to use to mark up financial statements. The ESEF taxonomy is primarily based on the taxonomy produced for IFRS financial reporting by the IFRS Foundation and is commonly referred to as the IFRS Taxonomy.
Alongside this base set of taxonomy elements, preparers are also required to use their own elements in any areas where the IFRS Taxonomy does not cover their disclosures. This set of company-specific elements also forms a taxonomy in itself.
While managing a number of taxonomies may sound like a challenging requirement, teams should not be concerned, as software is able to address and automate the technical details of the process.
How do I view the taxonomy?
You can easily look at the taxonomy, but it will not make much sense to the human eye. XBRL taxonomies are written to be machine-readable, so the taxonomy package published by ESMA, typically in a .zip file format, is not intended to be read by people directly.
That said, modern ESEF reporting software can load the information in those files and provide a user-friendly view of all the available elements—and even allow searching by keyword.
What is an “entry point”?
Taxonomies often contain all the elements needed for multiple types of report or user. In order to make it easier for the right taxonomy elements to be used in the right reports, XBRL taxonomies provide files known as “entry points”. These files specify which subsets of the taxonomy need to be used for different purposes.
Can the taxonomy be used in my country's native language?
Absolutely. (Or absolutamente or absoluut, perhaps.)
XBRL taxonomies include a lot of information to help a preparer identify the correct elements to use. In particular, the labels and documentation are very verbose. As the ESEF taxonomy is part of a European requirement, all of these labels have been translated and are available in the 23 official languages used in the European Union.
Where do I start?
To begin, you should see that the taxonomy has elements grouped a bit like a financial report. This should help locate elements commonly used in balance sheets or cash flow statements, for example.
As well as the labels mentioned above, the taxonomy also includes a number of other helpful pieces of information—probably the most important of which are the references.
ESEF taxonomy elements all have references back to the relevant paragraphs in the IFRS Standards. These references tell you which elements are associated with the reporting requirement being fulfilled.
Additionally, elements may have information indicating whether it is a debit or credit item, what format of information it is expected to be used (e.g., monetary, text, percentage) and whether the information is reported for an instant in time or over a duration (e.g., month, year).
Having a working knowledge of the answers to these common questions should get you started with the ESMA ESEF taxonomy. Understanding the contents of the ESEF taxonomy and how to navigate it is the perfect way to get prepared for the ESEF.
For a deeper look at the ESMA mandate and its impact on your team, you may also want to review the following blog posts: What You Need to Know About the ESMA Mandate and ESEF Reporting and Managing the ESEF Mandate's Impact on Your Annual Financial Report.
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