ESEF More than just a requirement...2020/01/01 · standard label in the taxonomy. (ESEF Reporting Manual, p. 11) The ESEF implementation requirements span well over 800 pages along

ESEF – More than just a requirement

For issuers to prepare annualfinancial reports in a EuropeanSingle Electronic Format

Contents

2 | ESEF – More than just a requirement

ESEF – More than just a requirement | 3

Introduction ................................................ 4

Challenges from the

EU Regulation – Key facts (I) ......................... 6

Challenges from the

EU Regulation – Key facts (II) ........................ 8

Challenges from the

EU Regulation – Summary of key facts......... 10

Implementation guidance

(IFRS consolidated financial statements) ..... 12

What measures need to be taken? ............... 14

Selected principles and guidelines

for mapping and tagging ............................. 16

Mapping scenarios ..................................... 18

Mapping (example Good Group Ltd.) ............. 20

Readiness assessment ................................ 22

Opportunity to enhance finance processes ... 23

Current state ............................................. 24

Future state ............................................... 25

IT and process knowledge from

a single source ........................................... 26

Other selected issues/outlook for

ESEF application ........................................ 28

Your ESEF subject matter team ................... 30

Your contacts at the

GSA IFRS Solution Center ........................... 31

Introduction



The European Securities and Markets Authority(ESMA), having developed regulatory technicalstandards (RTS) to specify a single electronicreporting format, requires issuers on EU regulatedmarkets to prepare annual financial reports (AFRs)in a European single electronic format (ESEF).

The information on the following pages will helpyou better understand these requirements andprovide guidance on implementation.

The scale of implementation depends on manyfactors: company size, number of items, scale of thenotes, current process, current IT systems, currentknow-how and ultimately also the future state.This future state can also include improvements inthe financial statement closing process or evenrestructuring of the current IFRS notes to provide apotentially more meaningful presentation.

We hope to provide you with valuable insights forimplementation and would be delighted to discussthe subject further with you.


Challenges from theEU Regulation – Key facts (I)

Overview

All companies with securities listed on EU regulated marketsare required to publish their annual financial report in aEuropean single electronic reporting format for fiscal yearsbeginning on or after 1 January 2020.

ESMA has proposed that annual financial reports should bepublished in a digital format using XHTML (eXtensibleHypertext Markup Language). IFRS consolidated financialstatements must also be marked up with tags using iXBRLtechnology (inline eXtensible Business Reporting Language).

The EU Regulation once again presentschallenges to companies followingdiscussions on disclosure effectivenessand the disclosure and presentationrequirements under the new IFRSs.

We provide you with an overview of thekey facts on the following pages.


Objectives

The objectives of the new regulation are:

• Greater comparability through the use of a single reporting

format

• Better level of electronic data processing

• Automated preparation and analysis

• Easy conversion into formats such as Excel

• Ultimately higher level of transparency for annual Financialreports and IFRS consolidated financial statements

Initial application

(IFRS consolidated financial statements):

Fiscal years beginning on or after 1 January 2020:1

• Figures from the primary financial statement elements(consolidated statement of financial position,consolidated statement of comprehensive income,consolidated statement of changes in equity,consolidated statement of cash flows) as well asselected content (e.g., name, registered office,business or legal form of the company)

Fiscal years beginning on or after 1 January 2022, additionally:

• Content in the notes to the consolidated financialstatements pursuant to the ESMA requirements (seeAnnex II No. 3 in conjunction with Table 2 of theproposed Delegated Regulation); example: Disclosureof accounting judgments and estimates

1) Supplement to initial application: Pursuant to Article 4 (1) of the Transparency Directive and Sec. 114 (1) Sentence 1 WpHG [“Wertpapierhandelsgesetz”:

German Securities Trading Act], domestic issuers must publish annual financial

reports within four months of the end of the fiscal year.


Challenges from theEU Regulation – Key facts (II)

Legalframework

Practiceguidance

The purpose of the Transparency Directive is to enhance transparency for investors

and for users of financial statements.

In a delegated act, the European Commission adopted the RegulatoryTechnical Standards (RTS) proposed by ESMA for a European singleelectronic format (ESEF) for financial reports and published them inthe Official Journal of the EU on 29 May 2019.

The ESEF stems from the Transparency Directive (2004/109/EU ofthe European Parliament and of the Council of 15 December 2004),pursuant to which issuers whose securities are listed on EU regulated

In addition to the RTS, ESMA also published:• ESEF XBRL taxonomy based on IFRS taxonomy (prescribed

structure of the content of IFRS consolidated financial statements in iXBRL), published on 21 March 2019;see ESMA website: https://www.esma.europa.eu/document/esma-esef-taxonomy-2017

Note: This taxonomy is the technical standard that reports must meet. Other technical documentation, specifications and

application guidance are also available there.

markets are required to publish their annual financial reports.Article 4 (7) of the Transparency Directive Amending Directive(2013/50/EU) requires that with effect from 1 January 2020, allannual financial reports must be prepared in a single electronicreporting format.


• Implementation guidance

• ESEF Reporting Manual(Preparation of Annual Financial Reports in inline XBRL)

• ESEF XBRL taxonomy documentation

https://www.esma.europa.eu/document/


Challenges from the EU Regulation –Summary of key facts

What report elements need to be marked up in XBRL?

Annual financial report Mandatory from 2020

IFRS consolidated financial statements Individual financial statements

Voluntary

(if taxonomy available)Mandatory from 2022

Voluntary

Block tagging for whole sections

of the notes

Detailed tagging for whole sectionsof the notes



Implementation guidance (IFRS consolidated financial statements)

Practical guidance

The prescribed structure of the ESEF taxonomy is mandatoryand must be extended if necessary. Preparers must mark-updisclosures using the taxonomy element having the closestaccounting meaning to the marked up disclosure.

The ESEF taxonomy may not be changed, however company-specific terms for core elements may be added.

If the closest taxonomy element misrepresents the accountingmeaning of the disclosure, issuers may create a so-calledextension taxonomy element.

The taxonomy to be used for ESEF is an extension of theIFRS taxonomy of the IFRS Foundation. Based onexperience with IFRS taxonomy, frequent changes andextensions to the ESEF taxonomy are anticipated. Companiesare advised to implement processes that ensure that thetaxonomy used and technical standards are always up todate and that new features are implemented at all levels ofthe accounting system.

1Companies implementing therequirements for IFRS consolidatedfinancial statements encounternumerous stumbling blocks which give rise to questions.

Sample sources of error

• A lack of mapping or tagging

• Incorrect labeling in terms of content (mapping)

or technically (tagging)

• Deviations between the iXBRL report and the actual

annual financial report

• Plus and minus signs or figures wrong

• Arithmetical errors (subtotals)

• Incorrect links when using extension taxonomy

Questions for clients

• Is the current financial close process suitable for the new requirements?

• Are the internal tasks delegated appropriately and are both technical expertise and accounting know-how available?

• In-house solution or external XBRL certified software?

2 3


elements


What measures need to be taken?

Five steps to implementing an iXBRL report

• Define the reporting strategy

• Define owners and establish

initial teams

• Document the current state of

the reporting processes and IT system landscape

• Check the implementation type, adapt ERP systems and/

or processes if necessary

• Draft a target operating model

• Compare chart of accounts with ESEF taxonomy

• Assign individual items of the annual financial report to the data structure prescribed by

the ESEF XBRL taxonomy

• Adjust the chart of accounts as necessary

• Document as necessary the documentation relating to the

need for taxonomy extensions, for example, to cover industry/

company-specific elements

• Define a mapping strategy and revise the accounting manual/account allocation guidelines

• Refine the future state for the operating model

A five-step model can be used to implement an iXBRL report. We believe it

is important to design a future state for

the operating model early on as further

decisions depend on it.

Strategic planning Mapping


• Choose and procure specialist software for iXBRL if necessary

• Create an electronic document (tagging, etc.)

• Implement the regulatory technical standards (RTS)

pursuant to Annex III and IV of the Delegated EU Regulation

• Define taxonomy update processes

• Finalize the future state of the operating model

• Ensure that the financial report in iXBRL format correctly and fully renders the report

contents at a technical and

functional level

• Comply with the technical specifications and validation

rules under the ESEF XBRL taxonomy

• Implement approval steps to avoid mistakes and missing information

• Involve external auditors early on in project phases where appropriate

• Publish the iXBRL annual financial report (company

website, company register)

• Comply with deadlines

• Apply practical expedients

Prepare an iXBRL report

Five stepsCheck/validate Disclosure


Selected principles and guidelinesfor mapping and tagging

• The item in the financial report should be allocated to therelevant item from the ESEF XBRL taxonomy whoseaccounting meaning comes closest to the item in thefinancial report. (Annex IV, No. 3, proposed DelegatedRegulation)

• The accounting meaning of a reporting item alonedetermines the allocation of a taxonomy element.A reporting element may be phrased differently from thestandard label in the taxonomy. (ESEF Reporting Manual, p.11)

The ESEF implementation requirements span well over 800 pages along with the

published taxonomies … the extracts here

provide you with an initial insight.

• If several taxonomy elements appear appropriate, theelement having the closest accounting meaning must beselected. (Annex IV, No. 3, proposed Delegated Regulation)

• If there is only one taxonomy element and its definition isbroader than the reporting item, this allocation is thennonetheless recommended provided there is no overlapwith other reporting items. (ESEF Reporting Manual, p.11)


Mapping scenarios

Mapping according to the defined taxonomy is key to implementation.

Difficulties can arise when certain items

are not defined or defined differently by

the regulator.


Exact or appropriate allocation possible ✓

= one item of the annual financial report corresponds to the accounting

meaning of an element in the ESEF XBRL taxonomy

Exact or appropriate allocation not possible

= taxonomy extension

Scenarios Example “Good Group Ltd.” IFRS taxonomy 2017

Matching wording „Property, plant and equipment“ (financial statement)

Different wording but identical

content„Investment properties“ (financial statement)

Wording does not cover all aspects „Investments in associates and joint ventures“ ((financial statement)

Aggregation necessary

(taxonomy extension)

Working capital adjustments:

Increase in trade and other receivables and

prepayments (cash flow statement)

Disaggregation necessary

(taxonomy extension)

Adjustments to reconcile profit before tax to net

cash flows: (cash flow statement)

• Depreciation and impairment of property, plant

and equipment

• Amortisation and impairment of intangible assets


1

2

3

4

5

✓ „Property, plant and equipment”

✓ „Investment property”

✓ „Investments in subsidiaries,

associates & joint ventures”

Adjustments for decrease (increase) in

trade accounts receivable

Adjustments for decrease (increase) in

other operating receivables

Adjustments for depreciation and

amortisation expense


Mapping (example Good Group Ltd.)

Mapping can be presented as shown below and ultimately means that the individual

items of the financial report are allocated

to the elements of the ESEF XBRL

taxonomy.


Requirements according to the proposed Delegated Regulation

Permitted exception: if certaincontent of the report is not covered

by an appropriate item in the

ESEF XBRL taxonomy

Technical specifications (selection):• Markup as a taxonomy extension

• Taxonomy extensions must be

anchored to elements in the ESEF XBRL taxonomy (anchoring)

Example:

Preferred presentation in the consolidated statement of financial position

Preparation of a taxonomy extension and anchoring within the ESEF XBRL taxonomy

Items in the ESEF XBRL taxonomy (extract)

Source: Komarek, CFSS & EFRAG TEG meeting – 20 September 2017

Equity attributable to owners of the company

Share capital and Premium

Cumulative translation differences

Treasury shares

Retained earnings and other reserves

Total equity


Readiness Assessment

What is the strategyfor capital market

communication? What

“picture” is to be

portrayed?What internal and external specifications need to be

considered?

What do the stakeholders

expect?

What chart of accounts

is the mapping based on?

How is it ensured that booked and reported

items are reconciled?

What reports from ERP systems are required for

which XBRL data?What adjustments/extensions to the taxonomy are needed?

Who performs the

tagging?

How is the preparation

of XBRL files embedded

in the internal control system?

Who prepares and who reviews what data when?

Who is involved in preparing the reports

(accounting team, IT

department, investor

relations, legal counsel?)

What skills are required? Which team is responsible

for which information?Should the XBRL report be prepared in-house? Or is

outsourcing an option?

What is the time schedule for the preparation and

filing of the XBRL reports?

Planning Technical specifications

Governance Ressources

Opportunity to enhance finance processes

The new regulation is a chance to look at the provisions not purely froma compliance perspective but also as an opportunity to initiate

improvements in processes and procedures in the reporting function.

In addition, measures to adjust the processes in financial reporting will be coupled with efficiency increases.

FI/GL

FA AP AR BP

CO

Reporting purposes Reporting Information gathering

Consolidated financial statements (incl. notes and management report)

Transactional finance applications

External group reporting

External reporting of individual entities

Internal reporting

Individual financial statements/tax accounts

Management Reporting

1

2

3

• Implementation of the ESEF requirements when preparing the IFRSconsolidated financial statements

• Reporting requirements form the basis for the structure of a chart of accounts

• Timely period-end closing• Allocation of data from various systems

to the global chart of accounts

• Clearly defined data structure for recording details of transactions

• Basis for the downstream analysis of data and information

Local and group level

Integration

Profit center statement

Income statement

Product costs

Overheads

Expense types


•Review and harmonization of the necessary reporting requirements

•Development of a taxonomy based on the main accounting framework for group purposes

•Harmonization of the local requirements and assessmentof relevance

•Consultation with other areas CO/IT

• Implementation of parallel accounting requirements usinga ledger instead of an account solution

• Stringently structured group-wide chart of accounts

• Standard definition of numbering conventions and

their local use

• Complete transparency for local units(initial mapping rules)

• (Preparation for the) Implementation of a newgroup-wide accounting solution (e.g., SAP S/4 HANA)

Potential measures

Objectives

Current state


Sources

Excel/Word

Reporting packages

Consolidation SAP/ERPtool/Enginge

SAP/ERP

Monthly reporting

SAP/ERP

CO-Tool

Reporting packages

SAP/ERP

Excel/Word

Excel/Word

Excel/ PP

ESEF/ XBRL

Issue format Information Medium

HTML Annual report IR/Website

Individual German GAAP financial

statements

Electronic federal gazette

(eBAnz)

XML/HTML

Internal reporting/controlling

Intranet/ SharepointDashboard

.xls, .pptx

IFRS annual report according to the ESEF taxonomy

IR/Website + ESMA’s European Electronic Access

Point

iXBRL

• Charts of accounts• Accounting guidelines• Local/centralized

processes• Subledgers• …







Consolidation tool/Enginge


... in keeping with “one single source of truth,”

a single source would be expedient for all types of reports ...

Future state


Sources

XBRL

Solution

Reporting packages

Consolidation SAP/ERPtool/Enginge

SAP/ERP

Monthly reporting

SAP/ERP

CO-Tool

Reporting packages

SAP/ERP

Excel/Word











Issue format Information Medium

HTML Annual report IR/Website

Individual German GAAP financial

statements

Electronic federal gazette

(eBAnz)

XML/HTML

Internal reporting/controlling

Intranet/ SharepointDashboard

.xls, .pptx

IFRS annual report according to the ESEF taxonomy

IR/Website + ESMA’s European Electronic Access

Point

iXBRL

... in addition to the back-end solution, a front-end

solution could also be considered.


IT and process knowledge froma single source

The proposed ESMA standard should be implemented against the background of further disclosure improvements and in

consultation with all relevant stakeholders as well as on the

basis of a detailed analysis.

EY offers a holistic approach and will work with you todevelop a tailored target operating model. At the same time,

taking the organization, landscape and stakeholders into

account, we also work to increase the quality of the financial

statements and optimize the process of preparing the notes

disclosures and annual report.

In a first step, we usually hold workshops that are specifically tailored to your company. In this phase we map out your

“readiness,” talk about “pain points,” propose “best

practices” and create an initial high-level working/target

hypothesis.

Typical project schedule “Leverage efficiencies”Holistic approach taking into account reporting, systems and processes

We see the regulatory requirements as an opportunity to improve the current financial close process, increase

comparability and add value as efficiency potential can

be leveraged through the implementation of the ESEF

requirements.

“



Other selected issues/outlookfor ESEF application

In addition to the aspects concerning implementation, other challenges and

issues need to be considered, from

publication through to the review of the

published report prepared using the

single electronic reporting format.

• In the case of issuers obliged to prepared group accounts,the annual financial report includes the IFRS consolidatedfinancial statements (which comprises the consolidatedstatement of financial position, the consolidated statementof comprehensive income, the consolidated statement ofchanges in equity, the consolidated statement of cashflows and notes to the consolidated financial statements;see the above “Key facts” for application dates) along withother elements (for example, group management report,group compliance statement, group auditor’s report). TheRTS allows for the option to also mark these up with iXBRLtags. Issuers can only make use of this option if themember state provides an appropriate national taxonomy.Developments at national level (e.g., XBRL Deutschland e.V.) should be monitored.


• At present, issuers not required to prepare group accounts are not (yet) subject to the publishing obligation.

• There is currently (still) no requirement under German national law to publish annual and consolidated German

GAAP financial statements in accordance with the single

electronic reporting format.

• A statement has yet to be issued by a professional

association outlining the effects from the regulatory changes on the financial statement audit and auditors in

relation to their involvement, the subject of the audit, the

scope of the audit and the report on the results of the audit.

• Further specifics and questions from users will emerge over the next weeks and months as the new reporting format is

put into practice. auf die Anwender zukommen.

Contacts

Your ESEF subject matter team

Please find contacts to our local EY experts on the website:

www.ey.com.pl

Audyt -> CFO Advisory


http://www.ey.com.pl/

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Documents

ESEF More than just a requirement...2020/01/01 · standard label in the taxonomy. (ESEF Reporting Manual, p. 11) The ESEF implementation requirements span well over 800 pages along