ESEF – How did year 1 go, and what to expect in year 2

ESEF – How did year 1 go, and what to expect in year 2

A significant number of listed businesses will have been through their first year of the new ESEF mandate and now have time to reflect on how the process went before looking ahead to the upcoming changes in year 2.

In this article we summarise some of the issues that businesses have faced in year 1 and look into the upcoming block tagging requirement.

Given ESEF was a new mandate there was always going to be teething issues were inevitable including;

  • Lack of awareness - Businesses were not fully aware of the new ESEF requirement or believed they were out of scope. As a result they did not prepare the xHTML for FCA submission, in most cases they have not had any communication from ESMA or the FCA on the lack of filing however the requirement is still there and they are at risk of investigation for not complying.
  • ESEF / iXBRL - Several businesses were advised that the ESEF filing is the same requirement from HMRC and tried to submit the tagged accounts which were prepared by their HMRC iXBRL provider to the FCA which led to rejections. The ESEF and HMRC mandates are completely separate, and they cannot be used interchangeably to satisfy the respective requirements.
  • Using inhouse resource – Some businesses chose an in-house solution initially given the primary statement only requirement. They found during the year end process that they had resource issues and compounded with a lack of technical experience on these new tagging requirements meant they had to employ a 3rd party to complete the tagging, very late in the process with premium charges.
  • Audit review - EU listed clients have an audit review requirement for their ESEF report. Time management issues were significant in these situations because the auditors required more review time, often very late in the process. In these cases, it is key to involve auditors in the process as early as possible to reduce the time required for the review of the final report, which is normally provided very close to the mandated submission deadline.

The above were just a few examples of issues that businesses we have spoken to have raised. Most have subsequently transitioned to BDO to provide their ESEF solution to ensure a smooth process in year 2, especially given the increase in complexity due to block tagging becoming mandatory.

The longer-term plan for ESEF reporting is for taxonomy and requirement changes to come in annually so we expect increased complexity as time goes on. BDO can help support you throughout this journey to ensure full compliance with changing requirements using qualified accountants who are expert in iXBRL and financial reporting, the first being the introduction of block tagging which is explained in more detail below:

Block Tagging

When does block tagging become mandatory?

Block tagging of the notes is mandatory for financial statement periods beginning on or after 1 January 2022.

What is block tagging?

The tagging of your full annual report from items in a list of tags contained in the ESEF base taxonomy. The term block tagging relates to information, marked up by zones: it is therefore not a question of tagging all figures in your notes like under HMRC’s mandate, but instead identifying the text zone relating to a note tag. A series of 252 tags have been identified by ESMA as mandatory, if one of these tags corresponds to information present in your notes, it is mandatory to tag.

What challenges could you face with block tagging?

Detailed guidance has just been published by ESMA, some of the challenges that have been identified are;

  • ESMA has stated that if a disclosure can represent more than one tagging element of different granularities then the information should be multi-tagged with the relevant tags of each layer of granularity, this will add time and complexity to ensure all the layers of granularity are met.
  • If an accounting policy or note does not have a corresponding tag, best practice is to create an extension which is judgemental and management review of the extensions applied will need to be factored into already tight reporting deadlines.

ESEF continues to be a significant challenge for listed businesses and it will only become more onerous in year 2 and beyond. BDO can help alleviate this burden so please do get in touch to understand how we can help.

For more information, please contact Adam Mycock, or refer to our ESEF pages

 

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