ESEF Mandate Fact Check: What Is True and False?

The ESEF (European Single Electronic Format) is now present in the Official Journal of the European Union, and therefore law. As a result, there has been an explosion of papers, articles and blog posts (including this one).

More information is generally a good thing, but this is typically when there starts to be signs of confusion.

Now is the time to step back and do some fact-checking on what is true, what is false and what is somewhere in between as we help make sense of some common misunderstandings about the ESEF mandate.

The ESEF is a requirement specified by ESMA, so companies must file to ESMA.

False.

It is true that the ESEF is indeed a requirement specified by the European Securities and Markets Authority (ESMA). The ESEF Regulatory Technical Standard (RTS) supplements the Transparency Directive and results from amendments to that directive made in 2013.

However, it doesn’t change the annual financial report (AFR) requirements as written in that directive.

For example, the filing deadline remains the same: “at the latest four months after the end of each financial year”. And the requirement to file with the local regulatory authority also remains the same: “it shall at the same time file that information with the competent authority of its home Member State”.

In most cases, companies will be filing their AFRs to the same bodies they do at the moment.

The requirement talks about XBRL^® tagging the consolidated financial statements. That means companies can produce an Inline XBRL^® file just for the statements, and the requirement to have the AFR in XHTML is totally separate.

False.

The RTS talks about what might seem to be two separate requirements, the annual financial report in XHTML and the XBRL tagging of IFRS consolidated financial statements.

The two requirements are actually closely related in two ways:

1. The format of XHTML is used as the base for embedding XBRL in Inline XBRL; the two are not entirely different formats.
2. The AFR (of course) contains the consolidated financial statements.

For those companies submitting consolidated financial statements in Inline XBRL, that XHTML AFR is the document being tagged.

The other important thing to note is that the content of the AFR is defined by the Transparency Directive, and the ESEF RTS doesn’t change any of the requirements in the Transparency Directive.

The ESEF field test files on the ESMA website can be used as templates or examples.

False.

The ESEF field test was a very important part of the process ESMA followed to produce the final set of rules. At the end of that field test, ESMA published a report of the results and the resulting test files on their website.

While the field test files are useful examples of what an Inline XBRL file might look like, they are not (and were not intended to be) valid against the final set of ESMA rules. They were produced against an early test version of the rules and changes were made as a result of lessons learned during the field test.

The RTS is now published and approved, so valid example files are something we will soon see appearing.

The ESEF Reporting Manual is, however, still evolving, so expect to see updates as we get closer to the deadlines.

ESMA has published the ESEF Taxonomy. A company using the IFRS Taxonomy for its SEC filing now has to tag everything twice.

False.

The short answer: if tagging is properly managed, then no, items should not need to be tagged twice.

The ESEF Taxonomy is what is called an extension of the IFRS Taxonomy, the same taxonomy that is mandated by the U.S. Securities and Exchange Commission (SEC).

XBRL taxonomy extensions can make major changes to their base. However, the good news is that in this case, the ESEF Taxonomy brings the same set of IFRS Taxonomy items used in the United States into Europe.

It will, however, be important to understand which versions of the IFRS Taxonomy are in use by both authorities and to have a clear understanding of where the two requirements differ, so valid filings can be sent to each.

Fortunately, this is something your reporting software should be set up to help with.

Companies do not need to use XBRL dimensions with ESEF tagging.

Well, that depends.

XBRL Dimensions are a very commonly used extension to the original XBRL specification. Essentially, they allow tables to be tagged in XBRL.

In some jurisdictions, XBRL dimensions are not used at all, and in others, their use is restricted. They are, however, used in the IFRS Taxonomy (the base for the ESEF Taxonomy), and their use is not restricted on the financial statements.

There is more information in section 1.5 of the ESEF Reporting Manual on when dimensions are expected to be used.

In summary, be guided by how and when they are used in the IFRS Taxonomy.

Even though the ESEF isn’t applicable until companies file the 2020 AFR, there is still plenty to do now.

True.

The 2020 annual report (and a filing in 2021) might seem like plenty of time to prepare. However, it is important to spend time now looking at how the ESEF could change your reporting processes and making sure that everyone in your team has the right skills.

While it is possible to comply with the ESEF requirement without changing the existing report process, adding the XBRL tagging and any required reviews on to the end of the process is less efficient and lengthens the time needed to prepare.

Workiva can help your organisation overcome the challenges of the ESEF by enabling your team to work together in a seamless and collaborative way with less risk and more transparency.

More questions?

Still have questions about how the ESEF will affect your AFR? Get in touch with us and we'll be happy to help you out.

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