Capital Quarter Spring 2021: ESMA reporting requirements – new digital standards

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Since the start of 2021, EU-regulated listed companies must produce their annual reports using a new structured format. Here’s what you need to know.

For financial years beginning on or after 1 January 2021 all public companies listed on an EU regulated market must create HTML-based annual reports using iXBRL tagging. This is in order to meet the European Single Electronic Format (ESEF) requirement mandated by the European Securities and Markets Authority (ESMA). The Financial Conduct Authority has added the stipulation to its handbook (DTR 4.1.14).

The aim of ESEF is to align financial reporting across the EU. The format enables documents to provide both human and machine-readable data. This should increase the speed of handling, reduce the chance of error, and permit automatic checking of information. The digital format will allow users such as investors, analysts and auditors to carry out software supported analysis and compare large amounts of financial information. Access to annual financial reports for both professional and retail investors is essential for creating robust capital markets across the EU.

ESMA sets out on its website  the digital format which issuers in the EU must use to report their company information from 1 January 2021 . It concludes that iXBRL is the most suitable technology to meet the EU requirement because it enables both machine and human readability in one document. In iXBRL formatted documents, XBRL tags are embedded in XHTML code in a single file. The XHTML gives the preparer control of their presentation, determining how the annual report looks. The XBRL allows them to describe the tagged information to a machine, determining how the data is consumed.

Bringing annual financial reports into the digital world through electronic reporting will make it easier for stakeholders to analyse, compare and access an issuer’s financial statements. The structured financial information that emerges from this tool is expected to trigger technological innovation which will improve financial reporting across the EU and provide more relevant and specific information to stakeholders.

So what are the main conclusions in the ESMA’s statement?

  1. Annual reports must be prepared in human readable XHTML format, which can be read by standard browsers without the need for specialised tools;
  2. Where annual reports contain IFRS consolidated financial statements, issuers must label this information using XBRL which is machine-readable. The XBRL data is embedded directly into the XHTML document through the iXBRL format;
  3.  IFRS taxonomy should be used to transfer financial information into structured data for the electronic reporting of IFRS financial statements.
As a listed company following these new rules, you will need to create personal tags for unique entity-specific disclosures and apply ‘anchoring’ to show where your tags would connect to the core ESEF taxonomy.

For more information on how we can help your business navigate this important regulatory mandate, please get in touch.

Written by Nick Joel in our London office.