ESEF: The recipe for transparent financial reporting
In the world of financial reporting, ESEF is becoming increasingly important. And with ESEF, terms such as taxonomy and XBRL often come up. But what does all this actually mean? We will take you into the kitchen and explain everything to you using a recipe.
Before we pull out the pots and pans, first this: why is the ESEF there? The ESEF standard has been established by the European Commission to improve the transparency and consistency of financial statements. This standard makes it easy to read financial data into a computer and to easily compare different reports.
ESEF: the recipe
ESEF stands for European Single Electronic Format. You can see ESEF as the written recipe for financial reporting. It provides the rules and regulations that companies must follow when preparing financial statements. Just as a recipe provides step-by-step instructions for preparing a dish, ESEF outlines the steps for creating structured and transparent financial reports.
XBRL: the ingredients list
XBRL stands for eXtensible Business Reporting Language. It is a technical standard that is used to provide parts of the financial statements with a descriptive 'tag'. You label important items, such as the total assets in your balance sheet and the profit in your income statement, with tags. But how do you determine which tag to use? That's where taxonomy comes in.
Taxonomy: the culinairy terminology
Taxonomy can be compared to culinary terms in a recipe. Think of terms such as poaching, deglazing, au gratin, etc. They tell you exactly what to do with the ingredients.
The ESEF taxonomy is a list of definitions that classify and organise financial data. With this list you ensure that the correct definition is linked to the correct number.
Which chefs have to start cooking?
The XBRL format for annual accounts is currently only mandatory for listed companies in the EU. But from next year the XBRL format will also be used in CSRD reports for tagging non-financial data. This makes it important for a larger group of organisations. The recipe will therefore slowly but surely be used in the kitchens of more organisations.