Did ESEF reports improve from 2022 to 2023?

ESMA released an enforcement report which provides some insights on the way European issuers have adapted to the ESEF reporting format.

Following up on this report and using to our proprietary database, we present our own analysis on the quality of ESEF publications in 2023 compared to that of 2022.

Marc Houllier

Marc Houllier

June 9, 2023
6 min read
Did ESEF reports improve from 2022 to 2023?

An overall stagnation in ESEF reports quality

To compare what is comparable, we selected only reports of entities that published ESEF reports in both 2022 and 2023. This allowed us to assess individual improvements, as well as broader trends across European companies.

The overall trend is one of general stagnation. A tendency to copy-paste errors from the 2022 report to the 2023 report is the main source of error in the 2023 reports. Some reports have had their errors corrected, but the share of such reports is almost equal to the share of reports with include errors on data that was previously correctly reported.

From our interviews with various types of stakeholder, we can sat that there several reasons for the overall stagnation. First and foremost, since most companies have struggled to master the ins and outs of ESEF since its implementation, supervisors have so far applied a policy of tolerance by accepting the majority of reports as they are, even if when they contain errors related to the data. Rejections and resubmissions seem to have been mostly limited to critical technical errors.

A flexible policy was necessary to help issuers adapt to a complex new format, but it has the consequence we are observing. With no observation from the supervisor, many issuers were led to believe that their reports were examined and found perfect… and that they had no reason to improve the quality of their electronic financial statements.

This overall trend at the European level is not completely homogeneous, however. The quality in some countries has improved significantly, while in other countries it has worsened. This reinforces our belief that the evolution of quality is linked to local initiatives by the national supervisor, audit firms or other stakeholder working groups who discussed the specific quality issues in the countries where quality improved.

Pitfall n°1: sign errors

The most critical mistake in ESEF reporting is the input of values with the wrong sign.

Such errors are easy to make, but they are consequence-heavy. A simple sign error can turn a 1 billion euros profit into a 1 billion euros loss. Instead of reporting 1 billion of interests received, a company might report 1 billion of interests paid.

This mistake is especially serious, since it can trigger a chain reaction of errors and invalidate an entire section of the report… thus misleading investors into inaccurate conclusions about the company's performance.

How to read this chart: The above chart only represents reports of companies that had at least 1 sign error in their report in 2022 or 2023. This represents 29.8% of reports in 2022 and 28.9% of reports in 2023.

Signage errors being almost always in pairs (for the reporting period and the comparative period), each pair only counts for 1 error in the statistics presented below.The number of errors in 2022 is present on the left side, while the number of errors in 2023 is present on the right side.

The thickness of the band between a number of errors in 2022 and the number of errors in 2023 is proportional to the number of reports with that amount of errors. The absolute number of reports in a band can be seen by hovering your mouse over that band.

Among French companies, sign errors used to be more frequent that the european average in 2022 with 33,6% of French publications containing sign errors. This proportion fell to 22.4% in 2023, now instead significantly lower than average. This follows specific discussions on the matter in working groups that involved all stakeholders.

As we mentioned, the change is not homogeneous. The most noticeable improvements in Europe are found in the reports of :

  • Convatec
  • Engie
  • La Banque Postale
  • Epiroc AB
  • Kaufman & Broad

Some others companies whose report was of good quality in 2022 suprisingly introduced many serious errors in their new report. The reports that introduced most previous absent errors were:

  • Technip Energies
  • Bonava AB
  • Knowit AB
  • Neinor Homes
  • Talgo

To prevent such errors, issuers should be aware of the conventions associated with each concept and thoroughly check their signage using the right tools, such as softwares that can automatically detect and correct errors.

For further insights into this issue, discover our article to sign errors, and how to avoid them.

Pitfall n°2: missing calculations

With ESEF, issuers are required to provide the calculations that determine the subtotals presented in the financial statements. This information is critical for a proper understanding of the reported data. However, this is one of the most widespread shortcoming among issuers: 92,7% of European reports had missing calculations in 2022, and 90,6% in 2023.

This problem affects the vast majority of French issuers, and has gotten worse from 2022 – 94,2% of French publications had missing calculations – to 2023 (95,2%).

This illustrates how the improvement of quality isn't general but is rather focused on the specific issues chosen by the stakeholders for that period.

As for missing calculations, the most noticeable improvements in European reports can be attributed to the following companies:

  • Svenska Handelsbanken
  • Knowit
  • Husqvarna
  • Ratos
  • Carrefour

There again, some companies surprisingly have missing calculations in their reports were they are not present in their previous reports. We can mention as the most impactful cases:

  • Rabobank
  • Munters
  • Heba Fastighets
  • Crédit Agricole Corporate and Investment Bank
  • Valeo

On the particular issue of undisclosed calculation, it is worth explaining why issuers consistently fail to provide complete calculations. Our analysis is that there are two main reasons for this phenomenon.

First, even as of 2023, a lot of software is still unable to create complete ESEF packages. It is still impossible for many issuers to comply with requirements and recommendations ESMA gave in 2019. With supervisors showing leniency to facilitate the transition to ESEF reporting and issuers making very few demands of the reporting software, there is a clear lack of incentive to create compliant software.

Secondly, some issuers intentionally omit calculations to avoid validation messages that would be triggered by an automated check. Validating declared calculations is much easier than detecting missing calculation, and as a result, many automated validation systems used by auditors and regulators only check declared calculations. As a consequence, some issuers, faced with a validation calculation error that they do not know how to solve, decide to conceal it by removing the calculation. As appalling as it is for users like us, a large share of the market seems to finds the situation acceptable.

It is of course impossible for us to determine the exact cause of the omission of a calculation in a report. There are certainly other cases besides the ones we mentioned, and issuers may even have been advised by their regulator or auditor to remove a calculation.

There is however one observation we can make for sure. When collecting reports, Corporatings does look for missing calculations and replays them. We can say with confidence that a large number of omissions led to other numerical mistakes going undetected, and that is why the fact that more than 90% of reports omit at least one calculation is a serious concern of ours.

Pitfall n°3 : the issue of comparability will be the focus of our next blogpost. Stay tuned for it and our full study next month!

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Marc Houllier
Marc Houllier
Cofounder & CTO