Single Electronic Reporting Format

According to a European Commission Regulation based on a technical regulatory standard developed by the European Securities and Markets Authority (ESMA), issuers of securities admitted to trading on a regulated market will have to use the European Single Electronic Format (ESEF) and prepare their annual reports in full using Extensible Hypertext Markup Language (xHTML) from the 2021 financial year onwards. As an additional requirement, companies issuing listed securities that prepare their consolidated financial statements in accordance with IFRS must mark up their consolidated financial statements using Extensible Business Reporting Language (XBRL) and embed the XBRL tags in the standard xHTML documents using Inline XBRL.

The European Single Electronic Format is introduced in a two-stage process. For primary financial statements (statement of financial position, income statement, statement of comprehensive income, statement of cash flows, statement of changes in equity) included in the consolidated financial statements under IFRS, a standard of detailed tagging should apply whereby those primary financial statements are fully marked up from the financial year 2021 onwards.

With regard to the notes to IFRS consolidated financial statements, a standard of block tagging should apply where whole sections of those notes are each to be marked up using single taxonomy elements. An additional year was available to prepare for this, i.e. the standard will be applied for the first time in the financial statements for the 2022 financial year.

This “XBRL capability” and the annual financial statements produced as a result do not have to be audited at present. The Commission has asked the Committee of European Auditing Oversight Bodies (CEAOB) to examine how an “ESEF audit” can be implemented in practice and, if possible, to provide guidance that could lead to changes in the legislation. The details are not yet known, but one thing is certain: compliance must be ensured in a closed, documented, and traceable way, both regarding the IT aspects of the task and the associated manual processes.

Making preparations to meet ESEF requirements requires in-depth knowledge of IFRS and XBRL. KPMG’s Smart Digital Finance team can provide effective assistance to functions performing financial reporting by identifying appropriate IFRS taxonomies and XBRL tags (creating a taxonomy dictionary) and providing technological support for the implementation. And all this is done in a way that has a minimal impact on established reporting procedures.