ESEF, which stands for European Single Electronic Format, is the format used for annual financial reports provided by issuers on European Union (EU) regulated markets. The electronic reporting format was developed by ESMA, the European Securities and Markets Authority. ESMA develops the standards for ESEF and offers guidance for companies working with the required reporting style.
ESEF came about as a result of a transparency push within the EU markets in 2013. Specifically, regulators amended Directive 2004/109/EC, so that issuers now had to use a single reporting format for annual reports, which they filed online.
If you file financial reports using SEC Filing software, you have an idea of the process. It may be helpful to think about ESEF as a point of comparison to the SEC. The process and the requirements are similar, though there are of course many points of difference.
ESEF Requirements
ESEF is used within the European Union, requiring securities issuers within the European market to use ESEF when preparing annual financial reports. The United Kingdom also has a requirement for UK listed entities to follow the ESEF mandate as do other European Economic Area (EEA) states namely Iceland, Norway and Liechtenstein.
Third-country issuers will tag in accordance with the elements that correspond to the IFRS as issued by the International Accounting Standard Board (IASB). Third-country issuers using third-country GAAPs are not yet allowed to tag their financial statements and therefore will provide annual reports in xhtml only format with no embedded tagging.
In addition, issuers with securities trading on EU-regulated markets must also conform to the ESEF reporting standard in their annual reports. Issuers working with ESEF can find compliance information, implementation tools and resources at ESMA.
In addition to the eligibility requirements mentioned above, there are some important ESEF reporting requirements to note. In brief, these include:
- Using XHTML, a markup language that is understandable by humans and readable by any web browser, for annual reports
- Using Inline XBRL tags (IXBRL) for any consolidated financial statements because inline XBRL tagging allows the statements to be machine-readable
- Embedding any XBRL tags in the final report using iXBRL
- Using detailed markup for all primary financial statements; within the Notes section, markup is limited to block tagging, such as notes explaining specific policies or providing context for a table of data
ESMA has a series of video tutorials which you may find helpful. These tutorials cover in detail topics such as how to prepare a report using IXBRL, answers to frequently asked questions about ESEF and a deep dive into the regulatory and technical standards involved in ESEF.
Of course, you should also use financial reporting software that adapts to the ESEF requirements, so that nothing is overlooked in the process of annual report filing.
ESEF Taxonomy
From a technical perspective, ESEF is built off the IFRS Taxonomy, which supports the hierarchical organization of financial information. The taxonomy lists specific elements that can be marked up and the appropriate markup language.
This taxonomy is updated annually to keep up with securities market changes. However, there are times when securities issuers may need to include extensions because the core taxonomy tags do not accurately represent the information they need to convey. In this case, there is the option to create what is known as an extension taxonomy element and anchor the extension to the existing label that most closely matches the definition.
ESEF and Sustainability Reporting
What is CSRD?
The Corporate Sustainability Reporting Directive (CSRD), which was entered into force from January 2023, further modernizes reporting rules, expanding and strengthening reporting requirements covering environmental, social and governance information to a broader range of larger companies and listed SMEs. By establishing stricter requirements for how companies issue reports and harmonizing standards, the CSRD aims to enhance transparency and accountability.
Beginning in 2024, CSRD will include information pertaining to sustainability, such as environmental, sustainable and governance (ESG) commitments under a new set of standards, namely European Sustainability Reporting Standards (ESRS).
What is the ESRS Taxonomy?
Issuers will now also have to mark up any sustainability management reports in XHTML format. They must also put any disclosure information required by Article 8 of the Taxonomy Regulation into the annual report using IXBRL and follow other related ESEF tagging requirements for data markup once made available by ESMA.
A draft ESRS taxonomy has been developed by the European Financial Reporting Advisory Group (EFRAG). The draft ESRS taxonomy, which is aligned with the ESRS standards, works to standardize reporting and streamline data collection, improving both consistency and accountability in the realm of corporate sustainability reporting.
Securities with an active presence on the EU market must follow the EU's reporting rules when it comes to their annual reports. This means using EFEF and the accompanying markup languages to prepare and file annual reports. ESEF regulations are always changing, as seen here with the move to include sustainability information under CSRD and ESRS standards. At DFIN, we are committed to sharing the latest updates regarding ESMA, the ESEF reporting format and other types of financial and sustainability related reporting.
For more information: Visit https://www.efrag.org/lab7
