ESEF Introduction
European Securities and Markets Authority, ESMA, the financial markets regulator and supervisor of the European Union, created a draft Regulatory Technical Standard (RTS) that specifies a single electronic format known as the Electronic Single Electronic Format (ESEF), which mandated the filing of annual financial reports from all issuers with securities listed on regulated markets in the EU from 1st January 2020.
This RTS developed by ESMA specifies a single electronic format, guidance, and implementation tools.
According to RTS, the core taxonomy used for tagging IFRS consolidated financial statements must be based on IFRS taxonomy (iXBRL) and is an extension of it, which is prepared and updated by the IFRS foundation annually.
Before we dive deep into ESEF iXBRL mandate, let’s understand what iXBRL tagging actually is:
What does ESEF Mandate mean?
According to RTS prepared by ESMA, all the issuers whose securities are listed on the regulated markets in the EU shall prepare their Annual Financial Reports in a single electronic format called European Single Electronic Filing, ESEF.
This means as per ESEF iXBRL mandate all the AFR shall be prepared in a single electronic format, technically that format is iXBRL format.
In simple language put is this way, ESEF mandates that issuers must prepare their AFR in xHTML documents and then the XBRL tags should be embedded in xHTML documents using inline XBRL technology.
Essentially single electronic format shall be prepared for submission to the regulators and that format is xHTML with embedded XBRL tags.
ESEF mandated that from January 01, 2022, that companies perform the block tagging of the notes to accounts. Now let’s understand what block tagging is.
Understanding iXBRL
What is iXBRL Tagging?
iXBRL stands for Inline eXtensible Reporting Language, it is an evolved form of XBRL and considered as one of the best internet languages to store and communicate business information over the internet.
The key features of iXBRL are:
- It utilizes the standardized tags from the predefined vocabulary of tags called taxonomy. Each tag in the taxonomy has its definition and meaning that make the information more informative for the users.
- iXBRL is human as well as machine-readable language, as it involves the XBRL tags to be embedded in the HTML (xHTML) document. Since XBRL is only machine-readable and HTML is human readable, therefore, inline tagging of data makes iXBRL machine as well human-readable eliminating the use of two files for communicating business information.
Why is iXBRL taxonomy required to tag financial Information?
Describe iXBRL:
An open standard called iXBRL, or Inline XBRL, allows for the provision of both structured, machine-readable data and human-readable data in a single document.
iXBRL is an advanced form of XBRL and belongs to the mark-up language family.
Who uses iXBRL?
iXBRL is used widely for business information reporting worldwide due to its unique feature of storing and communicating data across worldwide networks.
In the US, all businesses are required to submit iXBRL filings to the SEC, like this 10-Q filing from Delta.
Over two million companies in the UK submit iXBRL annually to Companies House, the business registrar, and HMRC, the UK tax authorities.
In Japan, the Japan Financial Services Agency (JFSA) receives financial statements from nearly 9000 listed firms and investment funds via iXBRL.
Over 100,000 iXBRL-formatted financial statements have been gathered in Denmark by the Danish Business Registrar for use in registration and market data.
For mandatory IFRS-based Annual Financial Statement filings of all public companies throughout Europe, beginning with reporting periods beginning on or after 1 January 2021.
ESMA, the European Securities and Markets Authority, requires public companies that report in IFRS (the vast majority of EU financial statements), to use Inline XBRL as the standard behind ESEF.
Understanding Block Tagging
What is the Block tagging of Notes?
In block tagging, a single tag is applied to the entire section of a footnote. This means that footnotes/sections can have textual data, numerical data, or even tables.
The purpose of tagging footnotes as text blocks is to keep all the texts, numbers, and tables together to maintain the integrity of the explanation.
One single tag of Text Block data type is applied by choosing the relevant tag for that footnote from the taxonomy. Text block tag properties include string item XBRL type and period is of Duration type.
ESMA guidelines for ESEF Mandate
ESMA:
Everywhere is undergoing a digital transition, including the European Securities and Markets Authority (ESMA). In order to achieve the EU’s broader objective of a single digital market strategy, issuers must prepare their yearly financial reports using a single electronic reporting format.
The mandate for a new, standardized EU single electronic data format has an influence on issuers’ regulatory compliance teams, just like any other new ESMA obligations do.
Compliance teams now have the chance to improve their corporate reporting procedures. Here are some essential details concerning the future single electronic reporting format regulation that every compliance officer needs to be aware of.
ESEF:
In order to improve the accessibility, analysis, and comparability of annual financial reports, issuers whose securities are authorized to trading on EU-regulated markets must prepare their annual financial reports in the European Single Electronic Format (ESEF).
ESMA has developed the regulatory technical standards (RTS) that specify this electronic reporting format as well as the guidelines and implementation tools.
A new regulation known as the European Single Electronic Format, or ESEF, requires issuers on EU-regulated markets to create their annual financial reports using a single electronic reporting data format.
With the new regulation, EU issuers will be compelled to publish yearly financial reports that are machine-readable and simpler to find, ushering in the digital information age for EU capital markets.
ESEF Scope
A need for issuers to prepare their annual financial reports (AFRs) in a single electronic reporting format (ESEF) was added to the Transparency Directive (Directive 2004/109/EC), which establishes rules on the harmonization of transparency requirements of issuers, in 2013.
The task of creating regulatory technical standards (RTS) to define this electronic reporting format was given to ESMA.
The original Final Report on the RTS on ESEF contains all of the specific ESEF provisions as well as the underlying policy decisions. Every year, ESMA modifies the RTS on ESEF to include the essential modifications to the ESEF taxonomy and market developments.
ESEF Reporting Manual
The ESEF reporting manual’s information is intended for issuers who must prepare annual financial reports in ESEF format as well as software companies who create tools for creating annual financial reports in Inline XBRL.
Since 2019, ESMA has updated the ESEF reporting manual every year with instructions on how to address and resolve typical problems that may arise while preparing ESEF documents.
The document’s goal is to support a coordinated and uniform method for creating yearly financial reports in the format required by the RTS on ESEF.
New ESMA rules governing the EU single digital market strategy
The ESMA guidelines and issuer transparency standards were established by the 2013 EU Transparency Directive (TD).
According to the EU Transparency Directive, ESMA is in charge of creating the uniform digital reporting format’s regulatory technical standards (RTS). Setting the stage for ESEF reporting, ESMA issued the final draught of the RTS on December 18, 2017.
All EU issuers (about 5,300 EU enterprises) will be required to prepare their financial reports using the global open-source XBRL electronic data reporting format as of January 1, 2020.
Each EU member state is required by the directive to establish an Officially Appointed Mechanism (OAM) that will be in charge of maintaining and disseminating regulated data. As a result, national regulations may need to be expanded.
ESMA ESEF Taxonomy
By increasing investor protection and fostering stable and orderly financial markets, the European Securities and Market Authority (ESMA), an independent EU authority, helps to maintain the stability of the EU financial system.
Beginning on January 1, 2020, issuers in EU-regulated markets must publish their annual financial reports in the European Single Electronic Format (ESEF), an electronic reporting format.
To establish this electronic reporting format, regulatory technical standards (RTS) were to be developed by ESMA (for more information, see the Final Report on RTS on ESEF).
The obligation for issuers to prepare annual financial reports in xHTML format; and the requirement for issuers filing IFRS consolidated financial statements to mark them up using the XBRL mark-up language in accordance with the ESEF taxonomy.
These requirements were introduced by a Delegated Act published by the European Commission on December 17, 2018 (subject to the right of the European Parliament and the Council to express objections, for a period of three months, renewable once).
For XBRL-based structured electronic reporting, a taxonomy is crucial since it offers a hierarchical structure for categorizing financial data.
The taxonomy that will be applied to ESEF is an expansion of the taxonomy for IFRS. Annexe VI of the RTS on ESEF contains the human-readable labels of the core ESEF taxonomy, which enumerate and define the precise elements that issuers can use to identify (‘tag’ or mark-up’) the information reported within IFRS consolidated financial statements.
If the closest taxonomy element misrepresents the accounting meaning of the disclosure, issuers must create an “extension taxonomy element” and anchor it to the core taxonomy element with the closest accounting meaning.
Issuers must mark up disclosures using the most recent ESEF taxonomy and the taxonomy element with the closest accounting meaning.
The IFRS Taxonomy is updated annually by the IFRS Foundation to reflect the publication of new or revised IFRSs, the examination of disclosures often reported in practice, or advancements in the IFRS Taxonomy’s general technology or content.
As a result, ESMA releases a Final Report every year that modifies the RTS on ESEF to include the necessary changes for the ESEF taxonomy to be in line with the IFRS Taxonomy.
From where you can find previously filed iXBRL files for the ESEF Mandate?
You can view iXBRL files by European companies at filings.xbrl.org. You can view them directly in your own browser or download the file and check for all the files present in it.
Prepare your iXBRL in-house or outsource to third-party vendors.
ESEF files can be prepared in-house or they can be outsourced to third-party specialists. Preparing ESEF files in-house requires iXBRL experts and a software license.
Alternatively, you can outsource ESEF iXBRL conversion to companies that are providing iXBRL tagging services.
Contracts with professional XBRL tagging service providers could be beneficial in numerous ways such as:
- Eliminate procuring XBRL conversion software
- Access to iXBRL experts at no extra costs.
- Quick turnaround time.
Here are the key points to remember while preparing the ESEF file.
To help you as you prepare your yearly financial reports, we have compiled a summary of the most crucial ESEF criteria. The main components of the ESEF mandate are covered in this list.
Use xHTML for annual reports.
Each and every annual financial report (AFR) must be created in xHTML, be legible by humans, and be openable in any typical web browser.
Integrate iXBRL into the xHTML file.
The consolidated financial statements must have XBRL tags embedded within the xHTML file in iXBRL format in order to combine the advantages of XBRL-tagged data with the visual presentation of AFRs.
Mark up all the financial statements carefully.
Issuers must meticulously mark up their major financial documents, such as the income statement, balance sheet, statement of cash flows, and statement of changes in equity when creating an xHTML file for submission.
Each and every number needs to be linked to the appropriate ESEF taxonomy element.
Add iXBRL tags to your consolidated financial statements.
AFRs comprising consolidated statements prepared in line with IFRS are required to include iXBRL tags, which make the relevant numbers machine-readable.
Mark up and tag all the notes to the accounts to XBRL taxonomy.
The marking up of accounting policies and notes to the financial statements using iXBRL is referred to as block tagging.
Numerous block tags may often correspond to the same disclosure. Instead of picking just one block tag, it’s important to tag the disclosure with all applicable ones.
Multi-tagging is a technique that guarantees an accurate representation of the data.
As a general rule, multi-tag to the extent that it is consistent with the data’s fundamental accounting meaning. Although tiresome, doing this is required to maintain compliance.
Adhere strictly to ESMA recommended XBRL taxonomy
Financial data must be organized in accordance with a set of guidelines outlined in the ESEF taxonomy. The ESEF taxonomy is a development of the IFRS taxonomy.
In ESEF reporting, only taxonomy items endorsed by ESMA must be used. Arbitrary taxonomy element creation is strictly forbidden.
Creating anchor to Extensions tags
The taxonomy element with the accounting meaning closest to the tagged disclosure must be used by preparers to mark up the financial disclosures.
It certain tags are not available in the standard taxonomy then preparers must make extensions of those elements tags and then these extensions must be linked to the core taxonomy through anchor tags.
Do not include executable code in the file
It is better to remove any executable programs from pictures, links, style attributes, and other elements because their inclusion in an ESEF file may pose a security risk.
A 100MB file size restriction
An ESEF file’s size is unlimited because it depends on the amount of pages, graphics, and other elements.
However, it is crucial to remember that although ESMA does not set any file size constraints, other regulators may have specific limitations on the number of files that can be submitted, usually around 100MB.
Errors and Warning Removals
Remove all the errors from the ESEF iXBRL file otherwise, you won’t be able to submit the file to the regulators. However, files can be uploaded if warnings are there, although a number of warnings are visible on the uploaded file.
Upload the audited zip file
ESEF files must be audited before submitting to the regulators. The ESEF must have an xHTML file along with the XBRL taxonomy files which collectively form the ESEF report.
Happy reading!
