What is ESEF?
ESEF stands for the European Single Electronic Format. It is an EU-wide regulation that digitises annual reporting. The objectives of ESEF are to make reporting easier for issuers and to facilitate accessibility, analysis and comparability of annual financial reports.
The ESEF Regulation became effective in the UK for accounting periods beginning on or after 1 January 2020, therefore companies with 31 December 2020 year ends will be the first to produce ESEF compliant annual reports. It applies to all issuers whose securities are admitted to trading on an EU or EEA regulated market. In the UK, it will apply to all FTSE listed companies, but does not apply to those listed on the Alternative Investment Market (AIM).
What are the requirements?
The ESEF Regulation requires companies within scope to produce their entire annual report and accounts as one single document in XHTML format for submission into the National Storage Mechanism. XHTML stands for eXtensible HyperText Markup Language and is a format that is human readable and can be opened with any standard web browser. A PDF document will no longer be compliant.
Within that XHTML document, companies are required to tag the primary financial statements and some other supplementary company information in iXBRL using the ESEF taxonomy. iXBRL stands for Inline eXtensible Business Reporting Language and enables the creation of a single XHTML document that can provide both human-readable and structured, machine-readable data. A taxonomy is a dictionary of iXBRL tags.
From 2022, the notes to the accounts will also have to be block tagged using iXBRL.
At the moment it is unclear whether the iXBRL tagging will need to be audited. Speak to your auditors and find out what their expectations are, and what their process will be if it becomes a requirement for the tagging to be audited.
What do companies need to do to get ready?
It is never too early for companies to start thinking about how this is going to fit into an already pressurised year end process. The number of software and XBRL tagging service providers in the UK is small and they will be inundated with enquiries as, in the UK alone, there will be several hundred listed groups requiring support. It is important that companies start exploring options now to ensure they have the appropriate processes in place to be compliant.
Aside from understanding the requirements and deciding on an approach to the tagging and production of ESEF compliant annual reports, companies must not forget to ensure they educate and up-skill their Boards and Audit Committees (who ultimately will be responsible for signing off the accounts), speak to their auditors about their approach to approving (and potentially auditing) the tagging and speak to their annual reporting agencies to ensure seamless integration of tagging and approval into the year end production process.