Another milestone in the journey towards the introduction of the ESMA regulations was achieved on 21/12/2019 with the release of the ESEF taxonomy.
Whilst on the face of it, this might seem a small detail, the implications it has for companies to plan to achieve compliance for their 2020 filing is significant.
The introduction of the taxonomy is a cornerstone for ESMA to enable reporting transparency across companies. The ESEF taxonomy is based on the International Financial Reporting Standards (IFRS) Taxonomy. As the IFRS Standards evolve, the ESEF Regulation and associated ESEF XBRL taxonomy files will evolve to provide preparers with the most relevant taxonomy for tagging IFRS consolidated financial statements.
The taxonomy is made up of a set of electronic files (ESEF XBRL taxonomy files) providing a structured representation that makes up the core taxonomy.
In practice, this means that those companies who will be required to file in the new ESMA format will be able to make progress with their ESMA compliance projects and subsequently be able to test to ensure compliance.
Easier said than done though, based on the existing heavy workload of the Finance departments.
With most companies, Q1 in 2020 will be consumed with the preparation of the 2019 annual report, with no time to consider an ESMA project until at best the end of February.
This should give plenty of time to ensure compliance for the 2020 filing, right? Not so fast. There are several hidden challenges that need to be planned and accounted for.
To enable compliant filing, companies will need to purchase a software solution or make the decision to outsource from a 3rd party.
With any software solution, the supplier needs to be identified, purchase agreed, software installed, and training completed, this is can sometimes be a lengthy process.
In covering regulatory reporting, best practise dictates that the tagging and the report preparation in the ESMA/ESEF compliant format needs to be tested on last year’s figures, which inevitably will require a few iterations of the reporting.
The preceding puts a new perspective on the time available, or lack of time available.
The infographic below illustrates the above and adds in the pre-existing half-year reporting black-out period for a Finance department when little or no progress can be made.
In short, start your ESMA project as soon as you can and if you choose the in-house software solution, select a solution that will integrate seamlessly with your data sources and help you stay within your comfort zone of the Microsoft environment.
The upside is that the supplier will help you quickly and logically work through the requirements for compliance. A potential upside is the opportunity to digitally transform your entire annual reporting cycle, reducing time to complete and simplifying the entire process.
In this case, the ESMA ESEF reporting cloud can very much have a silver lining.
For more insight into the ESMA solutions offered by Certent, take a look at our ESMA insight page.