What companies should do now to successfully prepare for ESEF
Even if the business figures for the past year have only just been published or will be on the tickers in the coming days, listed companies should already take a look at the next reporting season. With the Directive 2013/50/EU, a new EU-wide electronic reporting format has been launched. In introducing this initiative, the supervisory authority wants to ensure better international comparability in reporting. For issuers on the Regulated Market, this means in concrete terms that annual financial reports for financial years starting on or after 1 January 2020 must be prepared in the new European Single Electronic Format (ESEF).
Financial reports will be more easily machine-readable in the future, so that one software could easily analyze and evaluate a large number of annual reports. Up to now, annual financial reports have to be submitted to the Bundesanzeiger Verlag (or the national equivalent in other European countries) in XML format. Instead of XML, ESEF now relies on XHTML code with embedded XBRL tags. The XBRL taxonomy, which is based on the IFRS specifications, will lead to a convergence in the structure and terminology used in financial reports. Initially, this will particularly affect central company information and the annual financial statements (balance sheet, profit and loss statement). In a next step, 240 additional tags in the notes to the consolidated financial statements will be mandatory from 2022.
Finally, the ESEF-compliant report is also uploaded to the Federal Gazette for publication. According to current information, the German Stock Exchange still requires a PDF document. Good for issuers: Those who integrate a comprehensive image section into their annual report do not have to consider the future XHTML code in this section of the report. Voluntary information outside of the mandatory components is not affected by the new rules, as is the case with the previous XML format.
For issuers, the new electronic reporting standard means a necessary change in the report preparation process and certainly poses an additional challenge, especially in the final phase of report preparation. Issuers now have to:
- Check and decide at an early stage for your company whether you want to purchase suitable software for the ESEF and handle the electronic formatting in-house parallel to report generation or whether you want to outsource this to an external service provider, as is common practice with the previous XML formatting. If you choose to outsource, allow for more time for XBRL tagging.
- Allow sufficient time for the annual financial report to implement the ESEF and raise awareness of the new electronic reporting format among all project participants in the company. With the new electronic reporting format, the financial report must now be ready with sufficient lead time before the publication date so that the mandatory passages can be tagged in accordance with IFRS.
- Maintain a close dialogue with the responsible auditor. As things stand at present, the auditors are not involved in the direct implementation of the ESEF, but only check the technical format at the end. Make sure that the audit phases take place well ahead of the publication date so that final changes to content and format are still possible.
cometis AG supports listed companies in the preparation of financial reports during the year and advises issuers on ESEF issues.