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Disclosure requirements – Implementing the European Single Electronic Format (ESEF)

From 1.1.2021, companies that have issued securities on an organised market will have to publish their annual financial statements in accordance with the uniform EU-wide ESEF requirements. In corporate groups the related formatting requirements could radiate to the subsidiary levels. The audit obligations of auditors of annual accounts have likewise been expanded accordingly.

European Single Electronic Format (ESEF)

In Regulation (EU) 2018/815 the EU Commission created a set of rules with the aim of ensuring uniform EU-wide electronic reporting. Companies that have issued securities on an organised market insofar as they are not corporations within the meaning of Section 327a of the Commercial Code [Handelsgesetzbuch, HGB] fall within the scope of application of the Regulation.

In Germany, the Regulation was adopted via the ESEF Implementation Act (“Act on the Further Implementation of the Transparency Directive and its Amending Directive with Regard to a Common Electronic Format for Annual Financial Reports”), which was published in the Federal Law Gazette on 18.8.2020. The formatting requirements will have to be implemented for the first time for financial years beginning after 1.1.2020.

Financial statements in accordance with HGB

The ESEF Implementation Act amended Section 328 HGB. In future, the disclosure documents (annual financial statements, management report, consolidated financial statements, group management report and the statements by the legal representatives) will have to be submitted to the German Federal Gazette [Bundesanzeiger] in EXtensible HyperText Markup Language (XHTML) format. This requirement will also apply in equal measure to single-entity financial statements and consolidated financial statements.

Financial statements in accordance with IFRS

For financial statements that have to be prepared in accordance with IFRS there is an additional requirement to mark up items using Inline XBRL (iXBRL) that has to be taken into account. The aim of this marking up (so-called ‘tagging’) is to make financial information machine-readable and, thus, more easily accessible. The mandatory markups using tags are:

  • 10 core data elements shown in Table 1 in Annex II of Regulation (EU) 2018/815 as well as
  • information from the main components of the financial statements (balance sheet, statement of comprehensive income, cash flow statement and statement of changes in equity).

Mandatory tagging will be expanded for financial years beginning after 31.12.2021 to include the information stated in Table 2 in Annex II of Regulation (EU) 2018/815. In this connection, the block in the notes that contains the relevant information will also have to be marked up (so-called “block tagging”).

Please note: Annex IV of Regulation (EU) 2018/815 contains a list of the labels that have to be used. It is not exhaustive and is certain to be further supplemented.

Audit of the requirements by auditors of annual accounts

In future, Section 317 HGB will be supplemented with a paragraph 3b according to which auditors of annual accounts will be required to form an opinion as to whether or not the disclosure documents from the previous year satisfy the requirements under Section 328(1) HGB. Furthermore, auditors of annual accounts have to review the disclosure documents in order to determine whether or not the machine-readable presentation of the disclosure documents is identical to the prepared accounting documents and whether or not the data meet the technical specifications and are properly marked up. This includes auditing the internal controls of the technical validity of the technical specifications set out in Regulation (EU) 2018/815. For these three main areas, auditors of annual accounts have to provide both an auditor’s report as well as an auditor’s certificate in a separate section.

Conclusion: After having harmonised the contents of annual reports, the EU Commission is now also standardising their format by providing requirements for corporate disclosure that have to be met. Financial information in XHTML format with iXBRL data tagging can be read and evaluated electronically. The scope of audits for auditors of annual accounts will include, besides a focus on the internal controls of the technical validity, checks of XHTML reports to ensure that the content matches that of the accounting documents and verifying that iXBRL markups meet the requirements. In this respect a separate section will have to be added to the auditor’s certificate.

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