What is ESEF Digital Reporting and why does it matter?

Welcome to our first blog on the subject of Digital Reporting. Over the coming weeks, we’ll be sharing our thoughts on a number of topics in this emerging area of change in the financial reporting landscape. In this first blog, we’re going back to the basics of what Digital Reporting is and why we think it’s important.

What is Digital Reporting in the UK?

Digital Reporting involves producing financial and other public reporting in a structured digital format in order to comply with specific predefined rules. European Single Electronic Format (“ESEF”) is an example of a structured Digital Reporting requirement, which is impacting UK listed companies in scope. ESEF is the regulation that mandates those entities to make their financial statements publicly available in digital “machine readable” format. Therefore, an ESEF filing is a zip file containing the XBRL tagged Annual Financial Report which has both human-readable and machine-readable layers.

So why do we think this matters?

The introduction of the ESEF tagging requirement has been the biggest shakeup to financial reporting in some time and we believe it’s important to embrace this change.

• The future - This signifies the future of financial and public information consumption, as it facilitates accessibility, analysis and comparability of annual reporting. This represents the first steps of a transition from hard copy/ PDF to fully web enabled. Companies should be refocussing their attention to both the opportunities as well as the risks which Digital Reporting brings accordingly. The scope of Digital Reporting is bound to expand, for example climate and ESG disclosures, broader scope of tagging requirement and broader scope of companies captured, so now is the time to engage.
• Trust and confidence - It’s vital for markets and stakeholders to have trust and confidence in the quality of this data, so this is something we encourage entities to take seriously to protect the public interest.
• Complexity - The process of file preparation and tagging can be a challenging and time-consuming task to get right based on our experience to date.
• Reputational risk - Due to the public nature of these filings,there is a risk to reputation and public image if something is wrong, and mistakes are exposed.
• Regulatory focus - ESEF is being included within the scope of inspections performed by Both EU members regulators and ESMA. In the UK, the FCA assesses the quality of submissions and the FRC reviews a sample of filings for its Financial Reporting Lab reports on Structured Reporting.

In upcoming blogs, we will explore these points in more detail.

How can we help?

We have expertise in Digital Reporting having provided public assurance for a number of UK filers over the past two years. For issuers with listings on UK regulated markets, we can provide entities with assurance over their ESEF filings using ISAE 3000, including the provision of a public report, equivalent to that provided on mandatory basis in the EU. Please see our website for more details.