ESEF - benefits first, reservations second
Trend toward further digitization in reporting continues
Capital market-oriented companies in Europe will be required to prepare their annual financial reports in a uniform electronic reporting format (ESEF format) from January 1, 2020. This regulation pursues the goal of simplifying reporting and facilitating the accessibility, analysis and comparability of annual financial reports. From the legislator's perspective, the electronic format for financial reporting is therefore of great benefit to issuers, investors and competent authorities alike.
The draft law (government draft) submitted in this regard by the German government on January 22, 2020 to implement the change in the EU Transparency Directive is currently the subject of intensive discussion.
On the one hand, critical voices can be heard on the user side regarding the implementation effort. The implementation of the ESEF represents a challenge for the companies concerned with regard to the preparation process. According to the government draft, the electronic reproduction in ESEF format prepared for disclosure purposes is subject to the audit of the financial statements. This means that the ESEF format must already be available at the time the audit opinion is issued. For companies, this means a condensation of the preparation process in terms of time.
On the other hand, electronic reporting must be seen as part of the overarching trend towards digitization, which has also found its way into financial reporting. In recent years, for example, there has been a significant decline in the print runs of annual reports. In line with the online-first approach, companies publish their annual reports first and foremost as PDF documents on their websites. In addition, for reasons of sustainability, the once high print runs are being completely dispensed with. This trend also has an impact on the presentation of information in annual reports and the way they communicate with investors. For example, many companies make the most important tables available to their investors as Excel files for downloading. Following this development, the publication of the financial report in a uniform, machine-readable and -evaluable ESEF format represents the next step.
My personal conclusion on the ESEF implementation is therefore twofold: I can well empathize with the concerns of the companies concerned - in view of the regulatory requirements that have to be met. At the same time, however, I also see the opportunities and advantages that this step towards further digitization of financial reporting brings with it. Positive impulses in terms of the standardization of information in the annual financial report and the possibility of immediate further processing of machine-readable information as well as the opportunity to streamline the annual report in the long term are worth mentioning. Initial hurdles with the new reporting format will be overcome.
The author is the managing director of firesys GmbH. As a software provider, firesys supports - with an ESEF-compliant disclosure management system - more than 150 companies in the preparation of their financial publications. The author gives her personal opinion.