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ESEF – The Future Format for Financial Reports

Implementation of the Uniform Reporting Format

The “European Single Electronic Format” (ESEF) is a new EU requirement for all companies that have issued securities within the EU. The European Securities and Markets Authority (ESMA) requires these companies to publish their annual financial reports in a machine-readable format.

In practice, this means that companies will have to handle their financial reporting in an XML language, the “inline eXtensible Business Reporting Language” – iXBRL – as of January 1, 2020. Put simply, the introduction of the ESEF for the companies in question means that all figures and information from the previous financial statements will be provided with a standardized so-called tag. These tags then follow a clearly defined IFRS taxonomy, described in the iXBRL language, which enables IT systems to read out annual financial statements or consolidated financial statements fully automatically.,

The aim of the project is to ensure that IFRS consolidated financial statements can be better compared with each other in the future, irrespective of structure, language and format. In order not to make the effort for companies too great at the beginning, the ESMA decided that the first step would be to prepare only the “main financial statements” such as the balance sheet, income statement, cash flow and statement of changes in equity in a structured way. The chapters in the Notes to the financial statements may initially be collected and given one iXBRL tag. In addition, mandatory, identifiable tagging is planned for the IFRS Notes to consolidated financial statements by 2022. In special cases, IFRS taxonomy extensions are planned for so-called “entity specific disclosures.”

No direct transmission of financial statements to the ESMA is planned. The national business registers shall continue to exist. However, there will be a central European register with reference to the national registers (European Electronic Access Point). ESMA estimates that more than 5,000 corporations will be affected throughout Europe.

Factors for Successful ESEF Implementation

The requirements of a financial report on the basis of iXBRL should not be underestimated:

  • Determination of the requirements and careful selection of the IT software required for iXBRL tagging in line with the requirements
  • Compliance with legal requirements and applicable IFRS standards
  • Availability of detailed IFRS know-how and extensive reporting skills
  • Technical IT know-how for iXBRL tagging
  • Quality of reporting packages and efficient reporting architecture
  • Close cooperation between the involved corporate departments such as accounting, IT department, controlling, treasury, legal, tax and investor relations
  • Allocation of limited resources and consideration of further regulatory projects (IFRS 9, IFRS 15, IFRS 16, CSR Directive etc.)

Experience has shown that each preparation of financial statements has its own special features and challenges for the parties involved. For this reason, the early and creative implementation of efficient processes is recommended, especially taking into account scarce time and human resources.

However, the ESEF is not only a challenge, but also an opportunity to establish new concepts and optimized processes in accounting.

  • Digitization and Automation of Processes
  • Fundamental overhauling of financial reporting and focus on key issues
  • Integration of processes for data consolidation (harmonization of internal and external accounting)
  • With proper tagging, reporting can be made more efficient for the future
  • Better and faster data accessibility through automatic analysis options
  • Analysis possibility for a large number of data sets without language barriers
  • More efficient audit of financial statements by adjusting the processes of preparing financial statements and automating the checking of the completeness of the Notes to the financial statements

FAS AG Services in the Context of ESEF Implementation

In order for you to successfully master the challenges of ESEF implementation and make the best possible use of the potential of such a conversion, we have developed a roadmap that consistently accompanies you from the first kick-off to the final reporting.

The first step towards the effective implementation of ESEF reporting begins with an EFES readiness check. In this analysis phase we check the resources (material, staff and time) that have to be provided. We then define the requirements for the necessary ESEF software together with you and accompany you in the selection of suitable software that best covers the requirements of your company in terms of costs and benefits.

The actual recording of the reporting process is used as the basis to identify and implement possible potential for optimization, such as harmonization of the chart of accounts or streamlining of the necessary disclosures in the Notes to the financial statements. The objective here is to automate to a high degree the preparation of financial statements that will be repeated in the future.

In 2020, the software solution you have selected will be implemented. Ideally, this is followed by the immediate execution of test mapping in order to generate templates and empirical values. In addition, this phase also serves to adapt the tool to your company and industry structure at an early stage, to familiarize your employees with the tool and to resolve any problems quickly.

In 2021, smooth and structured ESEF reporting will then take place, so that the 2020 financial statements can be successfully tagged and transmitted to the Federal Gazette.

As a competent partner, FAS AG accompanies you during all phases of the implementation process within the framework of the ESEF project.

 

If you are interested or have any questions, please contact us.

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 Dr. Christian Herold Partner