ESEF: auditors, make an opportunity out of a challenge

To facilitate accessibility, analysis and comparability of issuers' financial reports across Europe, the ESEF, or European Single Electronic Format, was implemented in January 2021. This regulation aimed to introduce a very detailed taxonomy to improve report comparability and implies that PDF financial reports are no longer the norm. Indeed, the ESEF uses iXBRL language to allow the various financial elements to be tagged in accordance with the regulations and independently of language or sector of activity. While this is a laudable goal that helps with technology-aided comparisons, it is a thorn in the side of auditors who find themselves having to audit reports that are much harder to read and understand. Yet, it is possible to turn this constraint into an opportunity to save time, improve your client communication and even offer new services! Here’s how.

 Make the switch to ESEF today

 Some leeway is still given…

While the regulations concerning this new financial report format came into effect on January 1st 2021, the regulatory pressure is gradually increasing. With this new format being both technical and recent, regulatory institutions are still tolerant. The lack of compliance with this regulation is not yet penalised. However, this laxity will not last, and the expected compliance level will soon increase. Other regulations will soon use the same communication format, so why not be one step ahead of the game?

…But not for long

With these regulations come new responsibilities, expectations but also opportunities. Here are just a few of them:

•  Risk linked to audits is high and you are responsible for every account certification.

•  Your reputation is at risk. Too many errors in financial reports can negatively impact your standing and potentially lose your clients.

•  You risk being late to the game. Your competitors can get a head start and become leaders in this new market share if you don’t.

•  Your clients now expect you to follow up and offer support which requires time and tools. Being a zero-sum market, the audit business is competitive as the number of potential clients is fixed so retaining your existing clients is key.

• With talent and client retention becoming progressively harder, setting yourself ahead of the curve and showing that you are up-to-date on the latest requirements is a huge opportunity.

As of yet, the ESEF only applies to listed companies, but it would not be surprising given the situation in the US if the iXBRL format is extended to other financial reports in the coming years. The scope of this format will extend across more financial data and new regulations using XBRL are already planned for non-financial and ESG data in particular.

Indeed, according to Chapter 6b of the Directive of the European Parliament and of the Council^[1] regarding corporate sustainability reporting, relevant companies will be required to prepare their management and sustainability reports in accordance with the new electronic reporting format. So it is of utmost importance for auditors and their listed company clients to adopt this new format as soon as possible. By being ahead of the competition, you gain visibility and will be better able to retain your clients and your teams.

Why risk missing the boat? Better to seize this opportunity now!

• Interested in learning more about the new format of ESEF and its effects? Read our article dedicated to the topic here

What opportunities does ESEF present? 

If auditing ESEF reports is a challenge for you, it is simply because you are not using the right tools. Inadequate tools can slow you down and over-complicate this already very technical process. At the other end of the spectrum, by equipping yourself with a trustworthy and efficient tool like PRISM by Corporatings, you will be able to take your auditing one step further.  Here’s how:

• Take back control of the auditing process: As an auditor, you can end up with documents of varying quality as you are dependent on the work done upstream by the company or third parties who transformed the PDF report into the format required by ESEF. PRISM allows you to take control, verify, justify your fees, and highlight your role. This will simultaneously reduce your audit risk and give your team autonomy by allowing them to master the data and assist in its submission.

•  Make the process reliable and save time: Errors are inevitable in the absence of the right tools. You can use PRISM to confirm that the audited report complies with all requirements and is consistent with the information stated by accounting standards. This increases your auditing and consulting productivity by 30% as a result and allows you to save time and provide your clients with more advice.

•  Offer your customers more value: You can compare various reports, and various versions of your reports, using PRISM's Roll-forward capability. Tracking changes made in the report by the issuer between revisions or reporting periods is helpful for traceability.

Using a broad and sector-specific database, you may evaluate the comparability of the data in the audited report with that of European peers using the Data Benchmark capability. Indeed, Corporatings collects data from all European companies that produce reports in XHTML format, in order to feed their tool statistics on all companies that have published in this format

By digitalising this process, you can differentiate from competitors and build loyalty at the same time. Why? Because you will enable your clients and team to work better together with the benefits of an innovative solution.

ESEF is both a huge challenge and a great opportunity for your auditing business. But, if you look further than the obvious constraints that the new ESEF format presents, you’ll see that it is essential for your auditing company to take advantage of it to improve your services. If you’re ready and adapted to the new XBRL reports, you can seize a golden opportunity to add immense value to your clients. By using an ESEF quality control tool like PRISM, in the very competitive and limited landscape of auditing, you’ll be able to set yourself apart, keep ahead of the competition and generate increased revenue. This is an unprecedented opportunity for you to drive growth for years to come. Interested in finding out more? Get in touch.

^[1]‍