The ESMA Mandate: Impact of iXBRL and ESEF for listed companies in the EU
Digitisation is the norm everywhere, including the agenda from the European Securities and Markets Authority (ESMA), pushing for better utilization of technology in reporting and compliance. The goal is to ensure that listed companies within the EU are preparing their annual financial reports in a unified electronic reporting format. The ESMA has unveiled the first details of its plans for the digitization of reporting for listed companies in the EU. The new rule offers a perfect opportunity for compliance teams to improve their business reporting process.
The new rule of the European Single Electronic Format (ESEF)
The new rule mandates that listed companies in the EU-regulated markets use a single electronic reporting data format while preparing their annual financial reports. It expects these enterprises to provide reports that are machine-readable and easily readable by humans. Under the ESEF regulations, the obligation imposed on the issuers will be to report to ESMA through the relevant National Competent Authority (NCA). Starting January 1st, 2020, [about 5300] EU-listed companies will be required to use the global, open-source Inline eXtensible Business Reporting Language (iXBRL) electronic data reporting format while creating and submitting their financial reports to the respective NCAs. The NCAs will be obligated with to store and disseminate the regulated data to ESMA.
Impact of iXBRL and ESEF on listed companies in the EU
The iXBRL format and the new rules about ESEF make financial reports more accessible to the public while at the same time, ensuring comparability between filing entities. The globally used format can be opened with standard web browsers and displayed as the company intended, allowing easy access while drastically reducing duplicative efforts. iXBRL technology is used to embed identifiers called XBRL tags in an XHTML document, making all elements in the report easily recognizable.
This way, reports become equally easy for both machines and humans to scan, organize and process. The new ESEF rules will require using XBRL with a hierarchical structure to classify financial information. The financial statements that companies consolidate will be marked up in detail using tags that can be specific to a single element or expansive enough to cover entire sections.
With the new rules, listed companies will have a great opportunity to assess their reporting process. They could implement the new mandates in a manner that will change how they comply and how they report, leading to better financial reporting quality. It will enhance not only the reliability of the reporting process but also the efficiency and sustainability, resulting in better data governance.
Annual reports are critical and require a lot of time and capital in terms of design and production to communicate the company’s yearly results. They should reflect the best planning and thought available to the company. Because the annual report is a dominant information source for investors, lenders, employees and prospective talent, information should be relevant to the readers and presented well. That is why moving to the new iXBRL format required by the new rule about ESEF will facilitate the analysis, comparability and accessibility of companies’ annual reports. Listed companies should use the new ESEF standards to leap forward in digitising their reporting processes.
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