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ESMA Meets the Market

Posted on June 9, 2017 by Editor

Macro photo of tooth wheels with COMPLIANCE, REGULATIONS, STANDARDS, POLICIES and RULES words imprinted on metal surface

The European Securities and Markets Authority unveiled the first details of its plans for digitisation of reporting for listed companies this week. Presentations on the still draft plans for the implementation of the Inline XBRL ESEF mandate were provided to a packed room of interested observers. The key points at this stage:

  • ESEF, or the European Single Electronic Format for financial statement reporting is Inline XBRL. The ESEF mandate covers Annual Financial Reports prepared on the consolidated accounts of listed companies that are prepared in IFRS. This covers some 5300 companies today. A further 2000+ companies are exempt from using IFRS for their disclosures and are therefore exempt from Inline XBRL filings, at least at present.
  • The ESEF mandate is a legal obligation brought about as part of the Transparency Directive.
  • The mandate will come into effect for financial statements prepared for reporting periods that commence on or after 1 January 2020. For practical purposes this means that most EU companies will need to file their 2020 Annual Reports in Inline XBRL before 30 April 2021. Companies with financial years that commence after 1 January will have even longer to prepare.
  • The ESEF arrangements will not impose any particular rendering limitations. In other words, companies will be replacing “glossy” PDF reports with “glossy” XHTML/Inline XBRL reports.
  • Under the ESEF arrangements, the reporting obligation imposed on issuers is to report to the relevant national venue. In EU terms these are called “OAMs” or Officially Appointed Mechanisms. In most countries, the OAMs are either stock exchanges or national securities regulators. ESMA is working with member states and OAMs on a separate but tightly related initiative called the EEAP or European Electronic Access Point that will provide an index of filings, simplifying access and discovery for stock selection/screening and analysis.
  • For the first two years, ESMA is only requiring that companies:
    • Fully tag the face financials (the primary financial statements)
    • Block tag the notes to the accounts
    • Tag a small selection of additional disclosures.
  • It is expected that notes to the accounts will be tagged only after that initial two year introductory period.
  • ESMA will require extensions, but is attempting, as much as possible, to simplify the process and will require that extension concepts are “anchored” to concepts contained in the IFRS taxonomy. There are some detailed suggestions about exactly the way that this should work. XBRL International, including through the ESDTF, will provide feedback on these initiatives and make them public for others to consider.
  • ESMA has a number of other draft proposals on a range of technical details that are also being analysed at present.
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