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In 2013 the Transparency Directive, which sets rules on harmonization of transparency requirements for the EU regulated market, was amended to include, amongst others, a requirement for issuers to prepare their annual financial reports (AFRs) in a single electronic reporting format.
Subsequently, European Securities and Markets Authority (ESMA), the body responsible for auditing and drafting the EU regulation and the associated requirements was assigned the responsibility to develop regulatory technical standards (RTS) to specify this electronic reporting format.
In 2017, ESMA published a final draft regulation. This draft regulation of the Regulatory Technical Standards (RTS) provides a digital format (XHTML) for financial reporting and will become effective in all EU member states immediately after endorsement and publication in the Official Journal of the European Commission.
The ESEF implementation provisions a unified standard for both availability and readability thereby making reports more accessible, transparent and comparable. ‘It will make financial statements more accessible and more easily comparable for investors, improving transparency and contributing to increased investor protection,’ says Steven Maijoor, chair of the European Securities and Markets Authority (ESMA).
Traditionally annual finance reports have been printed and published in pdf formats. The process was tedious requiring a number of manual activities within the company producing the report. Also investors and analysts had to process the reports manually.
When listed companies publish their annual financial reports (AFR) in digital ESEF format, the AFRs will appear more structured and comparable, allowing consumers of the data to identify, read, extract and analyze information more accurately.
As ESEF is in machine-readable format, the AFR can now be rendered more accessible, comparable and transparent for both regulators and end users of the data such as analysts and investors.
Additionally the XHTML and iXBRL can be read by the human eye using a standard web browser, eliminating the need to publish annual financial reports as a separate PDF document.
To see this in action, visit the link iXBRL in action for a sample report tagged with XBRL. Tap the “Inline XBRL” tab on the upper right to highlight the information that has XBRL tags
The ESEF/iXBRL reporting system will allow the regulators both at EU and national level to determine industry trends and gain a high-level understanding of business in EU. By identifying various trends, regulators will now be better equipped to pinpoint issues relating to the financial soundness of individual operations. Regulators will also be able to compare companies with companies and industries with industries over different periods.
The information gleaned via iXBRL will be useful to analysts and private investment companies, giving them greater insight in where to invest. It could also help flag accounting irregularities and corporate fraud, potentially saving millions of euros and safeguarding jobs.
As an example, users can compare numerical information in the financial statements across different issuers even if the financial statements are in different languages, as XBRL taxonomies allows labels in several languages.
Also consumers can of financial data can easily import the XBRL information other formats such as SQL or Excel eliminating and manual keying errors.