The Standard You're Forgetting About

Have you ever heard of the ESEF? I'll try to jog your memory:

It's a standard. Commissioned back in 2013... ...by the European Securities and Markets Authority (ESMA). It regards published financial reports. The "F" is for Format... Anything? If not, then you're not alone: most people seem to have been so focused on IFRS 9, 15, and 16, plus new CSR requirements and other new directives, that they have let the ESEF slip by.

But slip by it shouldn't. The European Single Electronic Format (ahhh) or ESEF defines the format of published financial reports in light of the "transparency directive" (Directive 2004/109/EC), which requires all listed companies in the European Union to prepare IFRS financial reports.

Towards the end of last year, ESMA presented Regulatory Technical Standards (RTS), compliance with which is enforceable from 1 January 2022 (originally it was 2020 but a 2-year extension is already in the books). The new RTS explain what, specifically, this ESEF looks like and how companies can use it.

Structure your data

At present, most annual reports are PDFs with fancy custom designs—and no uniform structure. After companies start adhering to the RTS, however, these reports will be perfectly uniform. They will be machine-readable and thus easily processed, which is hugely advantageous for regulators and pretty much everyone in an increasingly big-data world.

Specifically, the RTS define the exact Extensible Hypertext Markup Language (XHTML) that companies must use to create their financial reports.

For consolidated financial statements, the issuer must "tag" the report with additional markups in Extensible Business Reporting Language (XBRL). Using XBRL requires a taxonomy system whereby unstructured data can be converted into machine-readable information, and this taxonomy is provided by the IFRS Foundation in this report, which is prepared annually to incorporate requirements from new IFRS standards.

Brace for impact

When the systems are revved up and operational, the reporting will be smooth and efficient for all parties involved. But that's in the future. In the...