(Part 1 out of 2)
Prepared by Stephanie Buhagiar Camilleri from Securities and Markets, MFSA
The European Single Electronic Format (ESEF) is the electronic reporting format in which issuers on EU regulated markets shall prepare their Annual Financial Report for financial years beginning on, or after, 1 January 2020. The objective of this new requirement is to make submission for issuers easier in addition to facilitating accessibility, analysis and comparability by investors and regulators.
The Transparency Directive
The Transparency Directive (TD), issued in 2004 and revised in 2013, aims to ensure transparency of information for investors through a regular flow of disclosure of periodic and ongoing regulated information, and the dissemination of such information, to the public. Regulated information consists of financial reports, information on major holdings of voting rights and information disclosed pursuant to the Market Abuse Directive (2003/6/EC).
Financial Reporting
The TD requires issues of securities traded on regulated markets within the EU to ensure appropriate transparency through a regular flow of information to the markets. The TD sets specific requirements in relation to annual and half yearly financial reports.
Specifically, Article 4(7) of the TD provides that, with effect from 1 January 2020, all annual financial reports shall be prepared in a single electronic reporting format, provided that a cost benefit analysis has been undertaken by the European Supervisory Authority (European Securities and Markets Authority) (ESMA) established by Regulation (EU) No 1095/2010 of the European Parliament and of the Council.
Article 4(7) of the Transparency Directive further provides that ESMA shall develop draft regulatory technical standards to specify the electronic reporting format, with due reference to current and future technological options. Before the adoption of the draft regulatory technical standards, ESMA is to carry out an adequate assessment of possible electronic reporting formats and conduct appropriate field tests. As per the Directive mentioned above, ESMA was to submit these draft regulatory technical standards to the Commission by 31 December 2016, at the latest.
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the second subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.
Development process of the draft Regulatory Technical Standard on ESEF
In 2015, ESMA published a consultation paper including a first Cost Benefit analysis, following which a Feedback Statement, including a second Cost Benefit Analysis, was published in 2016. The relevant technical specifications were developed and tested through field tests in 2017.
‘The objective of the ESEF field test was to assess through a hands-on exercise of transformation of financial reports into inline XBRL instance documents if and to what extent the specifications had to be improved in order to increase the usefulness of the ESEF data and reduce the burden on preparers’[1].
Key requirements of the ESEF
- FIRST - All annual financial reports will be prepared in xHTML or Extensible Hypertext Markup Language.
- SECONDLY - In the case of consolidated IFRS financial statements, issuers will mark up the consolidated financial statements using XBRL tags.
- THIRDLY - XBRL tags will be embedded in the xHTML document using the Inline XBRL technology.
What does ‘tagging’ mean?
‘Tagging’ is defined as the attribution to financial data of the most appropriate element chosen from a taxonomy, which is a dictionary of accounting terms[2]. Under the ESEF regime, it is the ESEF taxonomy which is to be used, based on the IFRS Taxonomy[3].
Detailed tagging will only be required for the primary financial statements, whilst for the notes, block tags will apply.
In order to obtain a better understanding of what an xHTML file looks like, watch the video tutorial issued by ESMA in November 2018.
Detailed tagging of the primary financial statements will be mandatory for annual financial reports containing financial statements for financial years beginning on or after 1 January 2020, whilst the requirement to block tag the notes will only come into force in 2022. Detailed tagging of the notes will be allowed on a voluntary basis.
