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.
Next Steps: Submission to the European Commission
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.
Why ESMA Skipped Public Consultation
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 ESMA deemed it 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.
Background: The IFRS Accounting Taxonomy and ESEF
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.
Minimal changes in the 2023 update and a need to focus on implementing ESEF requirements and preparing for sustainability reporting in electronic format influenced this decision. The IFRS Foundation published the 2024 IFRS Accounting Taxonomy 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.
The 2024 update to the European Single Electronic Reporting (ESEF) Taxonomy is a significant milestone. It marks the beginning of a series of amendments. These amendments are designed to align with the most recent IFRS Accounting Taxonomy. They also advance XBRL specifications.
It is essential for companies to comprehend the implications of these regulatory updates. This matters as they navigate through them.
This blog explores the complexities of the 2024 ESEF Taxonomy update. It elucidates the information that companies must be aware of. This helps 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. This draft revises the existing regulations on ESEF.
The amendments aim to align with the latest changes to the IFRS Accounting Taxonomy. They also align with 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). This taxonomy should 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. This ensures enhanced comparability of electronic financial statements prepared according to IFRS.
This will benefit end-users by promoting consistency in financial reporting. This applies both across Europe and on a global scale.
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. These updates ensure the alignment of electronic reporting with applicable standards.
In this blog post, we delve into the amendments made to the RTS on ESEF. These amendments are based on a draft RTS. The European Securities and Markets Authority (ESMA) prepared this draft RTS.
These amendments incorporate the 2023 and 2024 updates to the IFRS Accounting Taxonomy. This provides guidance to preparers on tagging financial statements.
Our analysis reveals a limited impact. This impact concerns the IFRS Accounting Taxonomy 2023 updates on the ESEF taxonomy.
Amendments/Updates related to IFRS Accounting Taxonomy 2023:
- Accounting standards consisted of amendments to IFRS 16 on “Lease Liability in a Sale and Leaseback”, where the IASB added subsequent measurement.
- Amendments to IAS 1 “Non-current Liabilities with Covenants” to provide improvements on the information provided by entities.
- ESMA updated the guidance on handling expired elements by adding a reference note to the element stating that it is expired and a guidance element stating that preparers should only use the element to tag non-restated comparative information.
- On the technical side, ESMA updated the Data Type Registry 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.
Amendments/Updates related to IFRS Accounting Taxonomy 2024:
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:
- ESMA makes minor corrections to three rows (esef_cor, esef_all, and ifrs-full) in Annex I, which provides the glossary of terms used in the RTS.
- ESMA makes specific changes 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.
- ESMA updates the list of taxonomy elements in Annex VI, which outlines the core taxonomy schema for marking up IFRS consolidated financial statements, 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. It also aims to ensure the highest level of comparability. This applies to 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. These elements are included in the 2023 and 2024 IFRS financial taxonomies.
Mandatory Timeline and Taxonomy Usage
To reduce the burden on preparers, this amendment to the RTS on European Single Electronic Format (ESEF) will be mandatory. This applies for financial years starting on or after January 1, 2025. Early adoption is also an option.
Therefore, issuers are expected to use either the 2022 ESEF taxonomy or the new 2024 ESEF taxonomy. This applies for annual financial reports starting on or after January 1, 2024.
Issuers are encouraged to begin familiarizing themselves with the 2024 ESEF taxonomy early. This is especially true if it better reflects the accounting meaning of the disclosure. This comparison is made against the 2022 ESEF taxonomy.
Restrictions on Mixing Taxonomies
It is important to note that the draft RTS does not allow something specific. Issuers cannot simultaneously use both the 2024 and 2022 ESEF taxonomies in a single filing.
Implications for Foreign Private Issuers Filing with the SEC
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. This means that issuers must base 2024 financial statements submitted to the SEC on the 2024 or 2023 IFRS taxonomies, not the 2022 version.
The Path to Adoption
ESMA has submitted its Final Report to the European Commission (EC). The EC 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. This period is extendable by an additional three months.
Looking Ahead
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, the 2024 update aims to enhance tagging requirements. It also aims to bolster comparability and consistency. This applies to 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. They must adjust to new versions of the ESEF framework as the regulatory environment changes.
They should also embrace innovative tools like IRIS CARBON®. This offers extensive collaborative features. It also includes free support and training within a concise two-hour timeframe and mindsets that propel them into the future
