All You Need To Know About The ESEF Mandate

IRIS CARBON® works with leading organizations across industries such as banks and financial institutions, insurance firms, energy and utilities, healthcare companies, mining companies, ports, and others.

The ESEF Mandate – What It Is And How It Came About

ESEF Mandate – Its Origins

The European Single Electronic Format (ESEF) Regulation came into force in the EU in June 2019. The ESEF mandate, as the regulation came to be known, applies to companies whose securities are traded in EU regulated markets. Under the ESEF mandate, companies are required to prepare their annual financial reports in the xHTML (eXtensible HyperText Markup Language) format.

Initially, EU companies were to mandatorily prepare their AFRs for 2020 in xHTML format. However, in order not to burden companies with new compliance requirements at a time when they were facing the effects of the pandemic, the ESMA allowed EU member countries to postpone implementing the ESEF mandate by one year. While several countries let companies benefit from the postponement, some others decided to mandatorily enforce ESEF implementation.

ESEF Mandate – What Compliance Involves

As we have mentioned before, the ESEF mandate requires companies to prepare their annual financial reports (AFRs) in the xHTML format. Moreover, companies preparing consolidated financial statements need to have XBRL tags embedded in their xHTML annual reports.

Introducing The XBRL And Inline XBRL Formats

XBRL stands for eXtensible Business Reporting Language. XBRL tags represent individual accounting concepts in a machine-readable form. XBRL tags are selected from a collection of such machine-readable tags which is known as a taxonomy. EU companies preparing consolidated financial statements need to use the ESEF taxonomy to tag their xHTML annual financial reports (AFR). An xHTML document with XBRL tags embedded is also called an Inline XBRL document.

Here’s the difference between XBRL and Inline XBRL (iXBRL) in simple terms. An XBRL document is machine-readable only, while an iXBRL document is machine-readable as well as human-readable. An XBRL document can only be viewed with the help of XBRL Viewer software. An iXBRL document, on the other hand, is an xHTML document that retains the aesthetically pleasing elements of the source document (a PDF annual report in the case of ESEF).

Industry and Related Forms

About The ESEF Taxonomy

The ESEF Taxonomy, which is maintained and updated by the ESMA, is a collection of XBRL tags that explains accounting concepts in a digitally-readable format. The ESEF Taxonomy is based on the IFRS Taxonomy, which in turn is based on the IFRS accounting standards.

Apart from the ESEF Taxonomy, ESMA also publishes the ESEF User Manual and ESEF Conformance Suite. The ESEF User Manual is meant to help ESEF filing companies as well as ESEF software providers to prepare documents that are compliant with the ESEF regulation. The ESEF Conformance Suite, on the other hand, is exclusively for a technical audience such as ESEF software developers.

Check out our ESEF Resources page to access the latest and previous versions of the ESEF Taxonomy.

Given below is a representation of how the ESEF Taxonomy looks on the IRIS CARBON® software. On the left are listed the ESEF Taxonomy concepts. The dropdown on the right lets ESEF report preparers select the taxonomy labels in a language of their choice.

Getting Started With ESEF Reporting: Things To Bear In Mind

Now getting to the mechanics of ESEF mandate compliance: there is an entire terminology to iXBRL reporting that ESEF filers would do well to understand. We explain various terms below.

ESEF Submission To An OAM

Firstly, to whom should companies submit their ESEF annual reports? The answer: It is to national databases for financial information called Officially Appointed Mechanisms (OAM), which are specific to each EU member country. Secondly, what does an ESEF filing that a company submits to an OAM consist of? An ESEF filing to an OAM consists of a company’s annual report in a digital format, which has two parts – the Instance Document and the Company Taxonomy.

The Instance Document represents a company’s annual report in the iXBRL format. An iXBRL document, as discussed above, is an xHTML or human-readable document with XBRL or machine-readable tags embedded in it. Therefore, an ESEF iXBRL annual report becomes human-readable and machine-readable at the same time. Moreover, the human-readable portion of the document, which is the xHTML, retains all the aesthetic features of a PDF annual report.

The company taxonomy is a collection of the ESEF taxonomy elements that a company has tagged its annual report disclosures or line items with. It also includes the custom elements or extension (XBRL) tags a company might have created to represent disclosures with no matching element in the ESEF taxonomy. Moreover, the company taxonomy expresses the relationships between all these elements with the help of four linkbases: Presentation linkbase, Calculation linkbase, Definition linkbase, and Label linkbase (More on the company taxonomy later).

Tagging, Extensions, and Anchoring

Moving on, what does the creation of an instance document entail? There are three main activities involved in instance document creation. They are tagging – or mapping the disclosures in an annual report to the appropriate ESEF taxonomy concept; creation of extensions or custom tags to represent disclosures for which the right fit element cannot be found in the ESEF taxonomy; and, anchoring, or the act of ‘connecting’ extensions to ESEF taxonomy concepts with the nearest accounting meaning.

How ESEF Tagging Works

The XBRL tags embedded in an xHTML annual report lend the document its machine readability. The act of tagging, or mapping the line items in an annual report to the right ESEF taxonomy concepts requires a good understanding of the ESEF taxonomy. It would also help to know how an XBRL or machine-readable tag looks. Here’s an example:

‘ifrs-full_Revenue’ is the machine-readable tag for revenue. The ‘ifrs’ portion indicates that this is an IFRS tag. ‘ifrs-full_CurrentAssets’ is the IFRS tag for current assets. A machine-readable tag has three attributes – data type, balance type, period type.

Element Name Ifrs-full-Revenue
Data Type monetaryItemtype
Balance Type Credit
Period Type Duration

The Data Type of a tag explains whether a disclosure represents a monetary value, shares, or percentage. For instance, the data type for the tag ‘ifrs-full_Revenue’ is ‘monetaryItemtype’.

The Balance Type explains if a monetary concept is a ‘debit’ or ‘credit’. For revenue, the balance type would be ‘credit’.

The Period Type explains if the value of disclosures is measured as of a particular date or over a period of time. Balance sheet disclosures have an ‘instant’ period type since they are reported on a particular data. Income statement disclosures, since they are measured over a 12-month period, will have the ‘duration’ period type.

Scope of ESEF Tagging: Phase 1 of the ESEF Mandate requires companies to tag all the numbers in the primary financial statements. Phase 2 of the mandate requires all the numbers in the AFR to be tagged, along with the notes to accounts – which will need to be block tagged.

Why Extension Elements Are Created And How They Work

While tagging their annual reports, companies will find that there are no appropriate ESEF taxonomy elements for certain disclosures. Companies may create extension elements or customized XBRL tags to represent such disclosures. However, it is good practice to create extension elements sparingly, since inappropriate use of extension elements might affect the quality of information and make the analysis and comparison of iXBRL reports difficult.

Here’s an example of disclosures that need an extension to be created.

In the example above, the XYZ Company is reporting two types of revenues. The first is ‘Crude Oil and Electricity Revenue’ – which we understand to be the primary source of revenue for the company. The second is ‘other revenue’, which combines all the other types of revenue that are not disclosed.

The ESEF Taxonomy contains the element ‘ifrs-full-Revenue’, which combines revenue from primary sources and other sources. If the XYZ Company had only one revenue disclosure – Crude Oil and Electricity Revenue – it could have been tagged with the ‘ifrs-full-Revenue’ element. But since the company is also disclosing other sources of revenue under Other Revenue, it would not be appropriate to accord the ‘ifrs-full-Revenue’ element to Crude Oil and Electricity Revenue – which represents only one part of the company’s revenue.

Furthermore, XYZ Company cannot use the element ‘ifrs- full_RevenueFromSaleOfCrudeOil’ to tag the Crude Oil and Electricity Revenue disclosure, because the element does not mention revenue from the sale of electricity. Hence, there’s a need to create an extension element in this case.

An extension element needs to have a prefix that represents the company name, followed by the element. So, the extension element, in this case, would be ‘xyz_ CrudeOilAndElectricityRevenue’.

Now we come to disclosures for which extension elements needn’t be created.

In this second example, both the revenue disclosures of ABC Company have a corresponding, appropriate ESEF Taxonomy element. Crude Oil Revenue can be tagged with the element ‘ifrs-full_RevenueFromSaleOfCrudeOil’ and Other Revenue with ‘ifrs-full_OtherRevenue’ from the ESEF Taxonomy.

Anchoring Of Extension Elements

We have seen that companies preparing ESEF annual reports need to create extension elements to represent disclosures that do not have corresponding ESEF Taxonomy elements to tag with. Per ESEF tagging guidelines, such extension elements also need to be ‘anchored’ to ESEF Taxonomy elements with the closest accounting meaning possible.

At times, the closest concept might be a broader ESEF Taxonomy element, while at other times it could be a narrower element. We explain the various scenarios with examples.

Anchoring To Broader ESEF Taxonomy Elements

One-on-one Anchoring: One-on-one anchoring involves the anchoring of a single extension element to a single ESEF Taxonomy element.

In the example above, the extension element ‘xyz_CrudeOilAndElectricityRevenue’ needs to be anchored to the broader ESEF Taxonomy element ‘ifrs-full_Revenue’.

Disaggregations: Disaggregations are also a form of one-on-one anchoring.

In this example, the extensions for both Petroleum Revenue and Petrochemicals Revenue will be anchored to the broader ESEF Taxonomy concept ‘ifrs-full_ RevenueFromSaleOfPetroleumAndPetrochemicalProducts’.

Disaggregations with subtotals

In the above example, an extension element has been created for the line item ‘Trade receivables, prepaid expenses and other miscellaneous receivables from related parties’. Extension elements have also been created for the child components of the line item – namely ‘Trade receivables and prepaid expenses – related parties’ and ‘Other miscellaneous receivables – related parties’. While the extensions for the child elements need to be anchored, the subtotal values do not need to be anchored.

Anchoring to narrower ESEF Taxonomy elements

Anchoring of extensions to ‘narrower’ ESEF Taxonomy elements is done when disclosures are made in combination or as a summation.

For the line item ‘Property, plant, equipment, and investment property’, the extension element combines two ESEF Taxonomy concepts – one for ‘property, plant, and equipment’ (ifrs-full_PropertyPlantAndEquipment) and the other for ‘investment property’ (ifrs-full_InvestmentProperty). This extension element that has been created needs to be anchored to the two ESEF Taxonomy concepts we have mentioned.

The Company Taxonomy

The company taxonomy represents the ESEF Taxonomy elements used in a company’s ESEF annual reports. It includes both the base ESEF Taxonomy elements as well as the extension or custom elements created. All those elements are represented in the form of four linkbases which are listed out below.

Presentation linkbase: The presentation linkbase represents a company’s annual financial report – as it is presented. Elements in the presentation linkbase need to be represented in the same sequence as they follow in an annual report.

Calculation linkbase: The calculation linkbase represents the arithmetic relationships between the disclosures in an annual report. For example, a calculation such as ‘Revenue – Cost of sales = Gross profit’ in an annual report should be mentioned in the company taxonomy.

Definition linkbase: The definition linkbase, in simple terms, is used to represent anchored relationships as well as dimension and member structures in statements (in a shareholders’ equity statement, for instance). Companies must ensure that their extension elements are anchored to the right fit elements in the ESEF Taxonomy.

Label linkbase: The label linkbase lists out the labels a company uses for line items in its annual report. For instance, a company can use the label ‘sales’ for an item that the ESEF Taxonomy called ‘revenue’. This would have to be mentioned in the label linkbase.