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ESEF: the future is now

The initial impact and going forward

Last week it became official that annual reports with fiscal years beginning on or after 1st January 2020 will need to be prepared in the ESEF format. But what is ESEF, how will this impact companies and their approach to reporting?

By Sally Eggeling | Director | Corporate Reporting

ESEF
The European Single Electronic Format for annual reports - this new regulation will affect all listed businesses in the EU including FTSE100, 250 and Small Cap indices. AIM list companies will not be impacted.

Purpose
The purpose is to increase transparency, ease of analysis and comparability of data held within financial reports across businesses, their peer groups and wider sectors. It will level the playing field and improve the speed of understanding for analysts and regulators.

How will it affect me?
One of the main impacts initially will be around timings. All businesses in the UK currently must supply iXBRL files to HMRC as part of the end of year process - however, ESEF will require them sooner, 4 months after year end.

Additionally, there are different taxonomies that need to be used across the HMRC and ESEF regulations, and any errors will be seen in public unlike the HMRC where all errors are kept private.

Next steps?
ESMA have highlighted that for the first two years the rules will be a relatively light touch. and it is only the primary financial statements that will need to be tagged. So, for example a 200+ pages report, could potentially have as few as five pages requiring machine-readable data.

As you would expect, several companies have been established already who have the solutions, technology and processes in place to tag the reports. Similarly, we are now seeing off-the-shelf products enabling companies to bring this ability in house. For reporting teams this means that there are some strong solutions available now for those wishing to be an earlier adopter ahead of 2020.

In the future it is expected that the tagging requirement will increase to include block tagging of the notes to the financial statements which additionally could include potential other areas of the annual report.

What does this mean from a communications perspective?
Reporting is still primarily considered in a print-based world and has not fully embraced the opportunities the digital environment can offer. The digitisation of structured data and the benefits of being able to manipulate and compare data across businesses, sectors and geographies gives infinite new possibilities to some audiences that need this information day in day out.

However, the biggest conundrum is how this will impact the production of the Annual Report and its ability to effectively articulate broader performance areas such as strategy, purpose and stakeholder engagement. As ever, there is no-one size fits all answer, each listed entity needs to weigh up the power and influence of continued, transparent and clear communication with all the business’ stakeholders vs the need to comply with regulation.

The reality of what this means for the overall format of annual reports in the future will be interesting to see, with some companies likely to opt for a stronger online articulation around their key reporting messages, and other developing a stripped back ESEF version sitting beside a more visually impactful review/strategic report. Currently the doors are open for the early adopters to pave the way.

I don’t understand the jargon

  • HTML – Hyper Text mark-up Language – the language of websites, this is used to create the visual elements of any web page – the structure and design.

  • XHTML – a computer language that is an extension of HTML that retains the functionality of HTML but allows information to be both human and machine readable.

  • XBRL – eXtensible Business Reporting Language – a computer tagging language used to report business information so it is machine readable documents

  • iXBRL – In-line XBRL – a single document that combines both XHTML and XBRL so that it is both machine and human readable. The XBRL features as a layer of information below the visual layer.

  • Taxonomy – accountancy specific tags that are used when reporting in XBRL.