The changing landscape of corporate reporting: ESEF and iXBRL decoded
In our latest spotlight on reporting, we look at the European Single Electronic Format and iXBRL.
What is the European Single Electronic Format (ESEF)?
The corporate landscape is approaching a significant turning point with technology set to have an impact on how annual reports are created and consumed. The ESEF will require tagging of the primary financial statements in the annual report and the subsequent tagging of all financial notes.
How did the European Single Electronic Format come in to being?
It followed on from the 2013 European Transparency Directive, which included a requirement for financial reports to be prepared in the European Single Electronic Format (ESEF).
When will the format be required?
Businesses with financial years beginning on, or after, the 1st of January 2020 will be required to use this format when preparing annual reports.
January 2020 is some way off, so when should we start preparing for it?
It may seem a long way off, but it is likely that companies who do not start making preparations may end up getting stung. Businesses must begin to familiarise themselves with the ESEF to mitigate a rather steep learning curve.
How will the tagging process work?
Companies will need to ensure that the annual report is filed in such a way that it can be read by standard internet browsers. The format for this is called XHTML, a combination of HTML and XML. Companies will be required to tag the primary financial statements using iXBRL, which are then embedded in XHTML web pages. Required tags come in the form of Financial Reporting Council (FRC) taxonomies.
How can businesses ensure the format reaches its full potential?
It is important that UK businesses do the following:
– Develop a strategy at board level to consider how it will be implemented, paying particular attention to flexibility and cost.
– Discuss the strategy with audit firms, peers and advisers.
– Engage with regulators, taking part in field tests and responding to consultations.
How will businesses benefit from the changes?
By embracing the the European Single Electronic Format, companies will have an opportunity to engage with their key audience, gain insights from them and ultimately develop a deeper and more enduring relationship.
The new filings will create an enormous pool of structured information that is far easier to extract, allowing investors the opportunity to spend less time wading through financial statements and more time becoming acquainted with the company narrative.
What is likely to happen to the PDF?
ESEF is unlikely to knock PDF off the throne when it comes to the annual reporting format of choice for stakeholders, due to the latter being immutable, searchable, portable and inexpensive to produce.
Is ESEF likely to apply after Brexit?
The uncertainty surrounding Brexit means that it would be foolish to make any guarantee one way or the other. If the UK retains single market access, it would be reasonable to expect ESEF to apply.
Where can I find more information?
If you’d like to find out what you should be doing now, contact [email protected].
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