The 2024 update to the European Single Electronic Reporting (ESEF) Taxonomy is a significant milestone, as it marks the beginning of a series of amendments that are designed to align with the most recent IFRS Accounting Taxonomy and advance XBRL specifications. It is essential for companies to comprehend the implications of these regulatory updates as they navigate through them. This blog explores the complexities of the 2024 ESEF Taxonomy update, elucidating the information that companies must be aware of in order to maintain transparency in financial reporting and ensure compliance.
Adapting to Regulatory Changes in ESEF Reporting
After the release of Commission Delegated Regulation (EU) 2019/815, also known as ‘the RTS on ESEF,’ ESMA introduced a draft RTS to revise the existing regulations on ESEF. The amendments aim to align with the latest changes to the IFRS Accounting Taxonomy and the recent advancements in technical XBRL specifications.
Similarly, the proposed regulatory technical standards (RTS) detailed in this Final Report align with the release of the 2023 and 2024 IFRS Accounting Taxonomy. The intention is to maintain an updated taxonomy within the RTS on European Single Electronic Format (ESEF) to reflect the most recent version of the IFRS Accounting Taxonomy. This initiative aims to enhance electronic reporting in line with current reporting standards. By revising the draft RTS, the objective is to streamline the implementation of tagging requirements, ensuring enhanced comparability of electronic financial statements prepared according to IFRS. This will benefit end-users by promoting consistency in financial reporting, both across Europe and on a global scale.
Impact of the 2023 and 2024 Updates
The revised RTS in this Final Report incorporates changes to Annexes I, II, III, V, and VI to align with the latest updates to the IFRS Accounting Taxonomy, including the 2023 and 2024 updates released by the IFRS Foundation. The amendments also reflect the most recent Inline XBRL specifications. These updates were applied on a consolidated basis, rather than on an annual release basis, to ensure compliance and consistency.
In the next steps of the process, ESMA will submit the Final Report containing the draft Regulatory Technical Standards (RTS) to the European Commission (EC) for endorsement. The EC will have three months to review and decide on the technical standards.
As per Article 10 of the ESMA Regulation, ESMA did not conduct a public consultation, cost-benefit analysis, or seek advice from stakeholders on this draft RTS, as it was deemed disproportionate to the scope and impact of the update. It is crucial to understand that this technical update does not bring about any new policies or significant changes to existing policies.
The ESEF Regulations require the use of the IFRS Accounting Taxonomy for marking up IFRS consolidated financial statements. This taxonomy is maintained and updated by the IFRS Foundation, with annual revisions to incorporate new IFRS standards and improve overall content and technology. In 2023, ESMA decided to delay the incorporation of the 2023 IFRS Accounting Taxonomy amendments into the RTS on ESEF until 2024. This decision was influenced by minimal changes in the 2023 update and a need to focus on implementing ESEF requirements and preparing for sustainability reporting in electronic format. The 2024 IFRS Accounting Taxonomy was published on 27 March 2024. ESMA has also established a dedicated mailbox (esef@esma.europa.eu ) for stakeholders to provide feedback on ESEF work, with continual evaluation of this feedback to improve RTS and guidance materials.
Exploring the Changes in the RTS on ESEF: An Overview of the Amendments
The Regulatory Technical Standards (RTS) on European Single Electronic Format (ESEF) mandates periodic updates to ensure the alignment of electronic reporting with applicable standards. In this blog post, we delve into the amendments made to the RTS on ESEF, based on a draft RTS prepared by the European Securities and Markets Authority (ESMA). These amendments incorporate the 2023 and 2024 updates to the IFRS Accounting Taxonomy, providing guidance to preparers on tagging financial statements. Our analysis reveals a limited impact of the IFRS Accounting Taxonomy 2023 updates on the ESEF taxonomy.
- Accounting standards consisted of amendments to IFRS 16 on “Lease Liability in a Sale and Leaseback”, where subsequent measurement was added.
- Amendments to IAS 1 “Non-current Liabilities with Covenants” to provide improvements on the information provided by entities.
- The guidance on handling expired elements was updated by adding a reference note to the element stating that it is expired and a guidance element stating that the element should only be used to tag non-restated comparative information.
- On the technical side, the Data Type Registry was updated from variant 2020 of version 1.1 to variant 2022 that incorporates additional data types.
Taxonomy changes with the update of 2023 IFRS Accounting Taxonomy:
- 38 elements were added, 241 were deprecated and 630 were modified. Added elements reflect the narrow-scope amendments to IFRS 16 and IAS 1 which were not mandatorily applicable in 2023.
- The total number of taxonomy elements in use, dropped by 203 from 5,249 to 5,046 elements.
- Total number of reportable elements dropped by 150 elements from 3,686 to 3,536 elements.
- A total of 22 extended link roles and their structure contents were updated, of which 2 extended link roles were removed.
The analysis conducted for the IFRS Accounting Taxonomy 2024 has revealed a more significant impact on the ESEF taxonomy compared to the 2023 IFRS Accounting Taxonomy update.
Main updates of Analysis:
- Amendments to IAS 12 “Income Tax” with additional disclosure requirements.
- Amendments to IAS 7 “Statement of Cash Flows” and IFRS 7 “Financial Instruments” to ensure proper disclosure of supplier finance arrangements and reverse factoring arrangements.
- Amendments to IAS 21 “The Effects of Changes in Foreign Exchange Rates” addressing how to determine the exchange rate when the spot exchange rate is 6 not observable.
- In terms of general improvements, the tagging of reconciliation of property, plant and equipment including right-of-use assets has been revised and updated alongside the introduction of categorical elements. These changes aim to enhance the quality of tagging of financial information.
Two main technology changes were implemented:
- The adoption of Calculations 1.1 specification which incorporates a special mechanism for handling duplicated values and can be applied to rounded values.
- Improving the understandability of the Taxonomy through a change in default members labels.
Taxonomy changes with the update of 2024 IFRS Accounting Taxonomy:
- A total of 406 elements were added, 122 were deprecated and 786 were modified.
- Total number of taxonomy elements in use increased by 284 from 5,046 to 5,330 elements.
- The total number of reportable elements increased as well by 217 elements from 3,536 to 3,753 elements.
- A total of 44 extended link roles and their structure contents were updated, of which 1 extended link role was added.
The draft RTS is revised for the years 2023 and 2024 to include the following adjustments:
- Minor corrections are made to three rows (esef_cor, esef_all, and ifrs-full) in Annex I, which provides the glossary of terms used in the RTS.
- Specific changes are made to Table “Mandatory elements of the core taxonomy to be marked up for financial years beginning on or after 1 January 2025” in Annex II, which outlines the mandatory mark-ups for issuers preparing iXBRL financial statements, to reflect updates in the list of accounting policies and notes.
- The list of taxonomy elements in Annex VI, which outlines the core taxonomy schema for marking up IFRS consolidated financial statements, is updated to align with modifications in the IFRS taxonomy elements.
Implementation of the amended RTS on ESEF:
This new draft of the Regulatory Technical Standards (RTS) aims to simplify the implementation of tagging requirements and ensure the highest level of comparability for electronic financial statements prepared in accordance with IFRS at both European and global levels. The draft RTS outlines the specific label types for each core taxonomy element included in the 2023 and 2024 IFRS financial taxonomies.
To reduce the burden on preparers, this amendment to the RTS on European Single Electronic Format (ESEF) will be mandatory for financial years starting on or after January 1, 2025, with the option for early adoption. Therefore, issuers are expected to use either the 2022 ESEF taxonomy or the new 2024 ESEF taxonomy for annual financial reports starting on or after January 1, 2024.
Issuers are encouraged to begin familiarizing themselves with the 2024 ESEF taxonomy early, especially if it better reflects the accounting meaning of the disclosure compared to the 2022 ESEF taxonomy. It is important to note that the draft RTS does not allow for the simultaneous use of both the 2024 and 2022 ESEF taxonomies in a single filing. Additionally, for issuers listed as foreign private issuers in the US, the SEC permits the filing of financial statements using either the latest or second latest IFRS taxonomies – meaning that 2024 financial statements submitted to the SEC must be based on the 2024 or 2023 IFRS taxonomies, not the 2022 version.
ESMA has submitted its Final Report to the European Commission (EC), which now has three months to adopt the draft RTS. Once adopted, the European Parliament and the Council have the opportunity to object to the standards within a three-month period, extendable by an additional three months.
The IFRS Accounting Taxonomy is expected to undergo further development as IFRS standards evolve. ESMA plans to continue updating the RTS on ESEF to align with future updates of the IFRS Accounting Taxonomy.
Conclusion
The revisions to the Regulatory Technical Standards (RTS) on European Single Electronic Format (ESEF) mark a pivotal moment in the realm of electronic reporting. With a keen focus on aligning with the latest IFRS Accounting Taxonomy and enhancing tagging requirements, the 2024 update aims to bolster comparability and consistency in financial reporting across Europe and beyond. As businesses gear up for the implementation of these changes, early familiarization with the updated ESEF taxonomy becomes instrumental. While the journey toward compliance may pose challenges, embracing these regulatory updates fosters transparency and credibility in financial reporting practices.
Companies need to be flexible and prepared to adjust to new versions of the ESEF framework as the regulatory environment changes. They should also embrace innovative tools like IRIS CARBON®, which offers extensive collaborative features together with free support and training within a concise two-hour timeframe and mindsets that propel them into the future.
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As the distinguished specialist at IRIS CARBON®, Praveen Rajporohit leads the way in advancing XBRL reporting. With 13 years of domain expertise, he navigates reporting mandates across the US, UK and EU. Praveen streamlines XBRL integration for European businesses, raising reporting standards. His expertise extends to the digital transformation of ESG data and authoring reports using the Disclosure Management platform. Praveen’s blogs offer practical insights for mastering XBRL reporting and financial disclosure, recognized for turning complex concepts into strategic assets. He guides industry leaders, ensuring each initiative is a roadmap for successful ESG integration and impactful financial reporting.
