3 tips for successful ESEF reporting

Written by: Marcel Rosenbrand

In December 2019, the European Securities and Markets Authority (ESMA) announced an important measure for public companies: they are obliged to publish the annual report digitally from 1 January 2020. Later this deadline was postponed to 1 January 2021.

This means that in 2021 companies must prepare their annual report to be in full compliance with the ESEF mandate: As an InlineXBRL document in accordance with ESEF requirements and taxonomy.

What does this mean and what should companies pay attention to? In this article, I provide 3 tips for successful ESEF reporting.

But first, what is ESEF and what is InlineXBRL?

ESEF

ESEF is short for the European Single Electronic Format, a new and mandatory digital format for annual reports. ESEF makes annual reports more accessible and facilitates the analysis and comparability of these documents.

Inline XBRL

To comply with ESEF, annual reports must be prepared in InlineXBRL (often abbreviated to iXBRL). It is a combination of:

  • HTML (HyperText Markup Language) – the language used to build web pages
  • XBRL (eXtensible Business Reporting Language) – a kind of digital barcode that uses a specific taxonomy to ‘tag’ financial data. The ESEF taxonomy is based on the IFRS taxonomy, along with some extensions offered by ESMA.

What needs to happen?

These are the actions to create an ESEF annual report:

  1. Publish the annual report as an XHTML document. This is what the term ‘Inline’ in ‘InlineXBRL’ refers to;
  2. Tag parts of the financial information in the annual report. This is what the term ‘XBRL’ in ‘InlineXBRL’ refers to.

These two actions will create a digital annual report that is ‘human readable’ and ‘machine readable’. It will be ‘human readable’ because the appearance will be readable, designed and can be viewed in a browser. It will be ‘machine readable’ because special software can be used to read the ‘human-unreadable’ XBRL information, which will create opportunities for analysis and comparison.

What is the impact of ESEF on organizations?

Organizations must review their annual reporting process to ensure that it complies with ESEF. From the reporting year 2021 onwards, it will no longer be possible in the EU to deliver annual reports in pdf format to the national financial market authorities. The annual reports must be in iXBRL format.

The consequences of this are manageable in the short term. Up to 1 January 2022, you will only need to tag the primary consolidated overviews in the IFRS financial statements. After this date, however, you will also need to tag the notes.

From the reporting year 2023 all large companies are also required to 'tag' their reported sustainability information in accordance with the ESEF Regulation.

Tip 1: Start on time

The 2021 annual report is the first annual report that needs to be filed with the national financial authorities as an iXBRL document. So start your preparations on time. Select a software supplier that meets your needs and do a ‘dry run’. Some authorities offer the opportunity to test iXBRL filings. If you do this, you will not have any unnecessary surprises.

Tip 2: Keep it simple

Implementing ESEF will impact your workflow. At first, you will spend most of your time properly tagging financial data. However, the technical realization of iXBRL also takes time. Therefore, work with a specialist who can advise you about tagging and who knows how to minimize the impact on your process.

This will prevent ESEF requirements from becoming too great of a burden on your organization.

Tip 3: Benefit from a 'digital first' approach

There are two types of solutions for turning an annual report into an iXBRL publication:

Pdf first

In the ‘pdf first’ approach, you produce a pdf of your annual report in the traditional way, and then convert it into HTML. This converted HTML version is tagged.

Digital first

In the ‘digital first’ approach, you create an HTML version of your annual report first. This native HTML version is tagged.

The ‘digital first’ approach has two main advantages:

  1. You maintain design and hyperlinks
    Design elements and hyperlinks are often lost when converting from pdf to HTML. This is a pity, because the iXBRL document will be consulted more often and will be made available by the national financial authorities. Stakeholders can have a disappointing user experience.
  2. You engage your stakeholders
    If you work with a software solution that provides a multichannel ‘digital first’ approach, you will be able to publish your annual report to more formats than just iXBRL: You can publish to iXBRL, pdf and to a responsive website simultaneously. This means as a company you do not only meet your liabilities, but you also reach a wider audience and improve stakeholder engagement with your annual report.

Are your looking for an ESEF solution?

The benefits of ESEF reporting with F19