ESEF Requirements & the ESMA Mandate: What You Need to Know
If you are a company operating in Europe, then adhering to the ESEF reporting requirements is not a choice but a regulatory mandate. To help you navigate the ESEF requirements and understand the ins and outs of the ESMA Mandate, we’ve put together a comprehensive guide that highlights the most crucial aspects to know.
What is the ESEF regulation?
The ESEF mandate is a requirement set out by ESMA which mandates EU-regulated market issuers to prepare their annual financial reports in a single electronic reporting format.
This data format is the ESEF format.
This regulation ensures that annual financial reports become machine-readable and more accessible, ushering EU capital markets into the digital information era.
ESEF regulation boosts accessibility, analysis, and comparability
The ESEF format aims to enhance the accessibility, analysis, and comparability of (consolidated) annual financial reports.
This is achieved by leveraging iXBRL technology, which simplifies the analysis and comparison of ESEF reports by providing standardized and universal meaning to facts and figures.
ESEF regulation boosts automation
By utilizing XBRL, financial reports can be easily analyzed without the need for contextual interpretation.
This results in automated processing and enables the comparison of millions of reports with ease.
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What are the ESEF requirements?
Let’s face it, complying with the ESEF requirements is no easy feat. From choosing the right XBRL tagging software to ensuring the accuracy and consistency of your financial reporting, there are many challenges to overcome. But perhaps the biggest hurdle is simply keeping track of all the ESEF requirements in the first place.
The ESEF regulation includes dozen of rules, manuals and technical specifications that companies must follow to submit their reports in the required ESEF format. For many finance professionals, this can be overwhelming, especially given the complexity and technicality of the requirements.
That’s why we’ve created a list of the most important ESEF requirements that you should know about as you prepare your annual financial reports. This list covers the key elements of the ESEF mandate.
1. Annual reports must be in xHTML
All annual financial reports (AFRs) must be prepared in xHTML, be human-readable, and be capable of being opened with any standard web browser.
2. Embed iXBRL within the xHTML file
To integrate the benefits of XBRL tagged data with the visual presentation of AFRs, the consolidated financial statements must have XBRL tags embedded within the xHTML file in iXBRL format.
3. Mark-up your financial statements in detail
When producing an xHTML file for submission, issuers are required to mark up their primary financial statements in great detail, including the income statement, balance sheet, statement of cash flows, and statement of changes in equity.
All numbers must be anchored to the correct ESEF taxonomy element.
4. Tag your consolidated financial statements with iXBRL
AFRs containing consolidated statements in accordance with International Financial Reporting Standards (IFRS) must be labelled with iXBRL tags, which make the figures in question machine-readable.
6. Block tag notes to the financial statements
Accounting policies and notes to the financial statements should be marked up using iXBRL, this is called block tagging.
In many cases, multiple block tags might match the same disclosure. It’s crucial to tag the disclosure with all relevant block tags instead of choosing just one.
This process is known as multi-tagging, and it ensures accurate representation of the information.
As a general guideline, multi-tag to the extent that aligns with the underlying accounting meaning of the data. This is tedious but necessary in order to stay compliant.
Speed up block tagging with TextSearch
With TextSearch, our Block Note Tagging solution, you speed up the tedious task of multi-tagging with the use of Excel.
7. Structured HTML and legibility for text-block tagged facts
Starting in 2024, all information extracted from text blocks, when viewed outside the context of the report, must resemble the original PDF in legibility and clarity.
With this change, text-block tagged facts must:
- maintain the original word and number order;
- ensure legibility and clarity comparable to the human-readable report, typically the PDF version of the annual report;
- incorporate appropriate spacing between words and numbers;
- preserve the table structure of the extracted information.
8. Strictly follow ESMA-endorsed taxonomy rules
Financial information must be structured by following a set of rules specified in the ESEF taxonomy. The taxonomy used for ESEF is an extension of the IFRS taxonomy.
It is vital that only ESMA-endorsed taxonomy elements are used in ESEF reporting. It is strictly prohibited to create arbitrary taxonomy elements.
9. Anchor taxonomy extensions
File preparers must mark-up disclosures with the taxonomy element that has the accounting meaning closest to the tagged disclosure.
If the closest taxonomy element misrepresents the meaning, the issuer has to develop a ‘new’ taxonomy element known as a “extension” and anchor it to the core taxonomy element.
What is the anchoring requirement for Notes to the financial statements?
There is currently no anchor requirement for the notes to the financial statements. When creating extensions while block tagging notes, it is optional to anchor such extension elements to the core taxonomy element.
10. Do not include executable code
The presence of executable code in an ESEF file can pose a security threat, therefore we recommend to remove any executable codes from images, links, style properties and other elements.
For instance, if an email address link includes the executable code ‘mailto:’, it should be removed to avoid potential security risks and validation errors.
Feel free to include links to external websites, email addresses, or other document sections, but any executable code should be removed.
11. File size limit of 100MB
There is no limit to the size of an ESEF file, as it varies depending on the number of images, pages, and other factors.
Nevertheless, it is important to note that although ESMA does not impose any limitations on the file size, certain regulators may have specific restrictions on the file size that can be submitted, typically around 100MB.
It is advisable to verify the regulations set by the relevant local authorities before publishing your report, as different regions may have varying requirements.
12. Must submit a ZIP file
An ESEF report is a ZIP file consisting of an xHTML file and a taxonomy package. It should be submitted as a ZIP file.
The ZIP file must conform to the Taxonomy Package specification as outlined in the ESEF Reporting Manual’s Guidance 2.6.1.
Get a better understanding of the ESEF format. Read our blog ‘The ESEF format explained’ →
ESEF requirements for 2024 and beyond
The latest requirement: Structure and legibility for text-block tagged facts
Starting in 2024, text-block tagged facts must be legible and clear, requiring the preservation of tables and text formatting of the Notes.
The ESMA update, which was released in August 2023, specifically aims to establish new standards for improving the readability of the Notes when viewed outside the context of the report.
What prompted the release of this new requirement?
This new requirement was introduced due to the frequent issue of poorly formed xHTML resulting from PDF-converted ESEF reports.
Challenges arise in translating PDF data into clean and structured HTML, mainly because PDF functions as an image rather than a text-based format.
Consequently, the preservation of text formatting, table structures, and line breaks is often compromised.
When does this become an issue?
This becomes a significant issue when viewing tagged financial information within the Notes outside the context of the report.
This type of viewing is typically conducted using XBRL viewers and is a common practice among auditors.
ESMA has identified the following as the most common issues:
- Lost table structures
- Missing applied styles
- Odd line breaks, or different line breaks compared to the original PDF
- Inadequate spacing between words and numbers
- Changes in word and number order
Example: Non-structured vs. Structured facts
The non-structured example illustrates the common occurrence of text-block tagged facts when viewed outside the context of the original report. It notably showcases a lack of table structure and peculiar line breaks.
In contrast, the structured example depicts the format now mandated by ESMA, maintaining text formatting and preserving table structures as required.
The structured HTML output of your converted reports is viewable in any Inline Viewer, not limited to the ParsePort Platform.
More structure & better legibility with ParsePort
ESEF requirements update for 2022: Block Note Tagging
The ESEF tagging scope has expanded to include notes and accounting policies.
For fiscal years starting on or after January 1, 2022, annual financial reports are required to have notes to the financial statements tagged with iXBRL, commonly known as block tagging.
This practical example provides a visual representation of how block tagging is implemented.
Our free guide to block tag notes faster and smarter
New to block note tagging or want to optimize your block tagging workflow? Download our free Ultimate Block Note Tagging Guide.
It provides comprehensive guidance with examples, best practices, and tips to streamline your workflow.
Download it today to take the first step towards improving your block note tagging process.
Our guide will teach you
- All technical terms used in ESEF reporting process
- Proper planning of your block note tagging process
- Effective ways to successfully prepare for block tagging
- Complete understanding of block tagging requirements
- Multiple methods to use for block tagging
Our guide provides you with
- A comprehensive glossary of all technical terms you need to understand
- A detailed action plan for planning and preparing your block tagging process
- Step-by-step instructions with numerous examples and screenshots
- A block tagging checklist equipped with key questions that will help you plan for success
How to Block Tag notes to the financial statements
Complete ESEF block note tagging guide with step-by-step instructions, examples, and popular method comparison.
What are the ESEF requirements for 2025?
An ESEF taxonomy update is anticipated, which could bring about new ESEF requirements. ESMA has a similar timeline for releasing taxonomy updates each year.
To help you stay ahead of the curve, our blog on mastering ESEF reporting details when to expect taxonomy updates and how to prepare for them.
Although the 2025 requirements have not been released yet, they are expected to be available in July or August.
We recommend keeping an eye on updates from ESMA to ensure compliance with any new requirements.
A brief overview of ESMA’s ESEF mandate
It is essential to have a basic understand of ESMA’s ESEF mandate. We have created a timeline highlighting all important dates and publications.
- ESMA was assigned the duty of creating regulatory technical standards (RTS) for a single digital reporting format as per the EU Transparency Directive.
- ESMA was tasked in 2013 with developing a European Single Electronic Format for annually financial reporting.
- In December 2017, ESMA released the final draft for the RTS, laying the foundation for ESEF reporting.
- The ESEF regulations were implemented on June 18, 2019.
- All companies listed on European regulated markets must report their AFRs in ESEF from January 1, 2020.
- From 2022, all notes to the financial statements must be tagged with iXBRL, this taxonomy update is known as ‘Block Tagging’. Our free block note tagging guide breaks it all down →
The ESEF reporting manual by ESMA
ESMA has developed the ESEF Reporting Manual to assist companies in complying with the ESEF requirements and to identify common issues related to creating iXBRL documents.
The manual was first published in December 2017 and has been updated many times over the course of several years to provide the latest guidance and instructions.
The latest version of ESEF reporting manual by ESMA can be found here →
Ensure your ESEF compliance with ParsePort’s up-to-date platform
The ParsePort Platform is equipped with the latest taxonomy and comes with all the requirements built-in. Our software performs thorough validation against these requirements during both conversion and inspection, ensuring an error free ESEF report.
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