Strong correlations between ESEF quality, country and audit firm

Users of financial reports rely on audit opinions to gain confidence in the accuracy of disclosures and on the compliance of the data. Assurance is equally important for consumers of the digital report but it's not always clear what's being reviewed and what type of inconsistencies are considered material. Through the lens an inconsistency, we highlight the differences among audit firms and countries.

Marc Houllier

Marc Houllier

January 3, 2024
6 min read
Strong correlations between ESEF quality, country and audit firm

Audit in the ESEF landscape

With the implementation of the European Single Electronic Format (ESEF), many Member States of the European Union extended the auditor’s opinion to also cover the machine-readable layer of the electronic format, so that users of the format could get assurance on the compliance of the report with the technical standard and on the consistency and accuracy of the contained information.

While electronic formats very similar to ESEF have been required from listed companies around the world for a long time, they have historically not been covered by the auditor’s opinion. Audit firms in Europe are therefore pioneering the task, with many hurdles linked with the technical aspects of the format.

There is limited coordination on this at the European level. High-level guidelines have been drafted for all auditors and also most likely by each international audit firm; however, the reports we collect make it quite apparent that the process can be quite different among reports.

With the technical nature of the task, it must be noted that the auditor’s ability to consistently review certain types of issues may be impacted by the toolset used. Issues in published reports therefore do not necessarily mean that the auditor would not consider the issue material. From the user’s point of view however, the outcome is the same: an unqualified opinion on a report with significant issues.

Our objective with this study is certainly not to blame any auditor for issues that may make it through publication of the annual financial reports. We fully recognize the difficulty of reviewing electronic reports, and we are aware of the frequent very poor overall quality of reports initially submitted for review and the tight timelines linked to late submission to auditors.

On the contrary, the data we show below clearly point out to auditors having a significantly positive impact on the overall quality of the reports we collect.

We however want to highlight the discrepancies across firms and countries as these discrepancies result in us users being unable to have a reliable interpretation of the auditor's opinion. We would like to encourage knowledge sharing from auditors who successfully review reports to those for which it is still a challenge, so that we can hope to move towards the establishment of a baseline of what should be expected of an electronic report with an unqualified opinion.

Sign of the income taxes paid cash flow

The ESEF taxonomy provides a metric for reports to disclose the amount of income taxes an issuer paid or got refunded. Like all metrics, it has a sign convention: a negative value for the metric means a net cash inflow (a refund), while a positive value means a net cash outflow.

It is not rare for first-time users of digital reporting to make a mistake there, as cash outflows are usually displayed with negative values to highlight the fact that cash outflows are subtractions from cash.

To study the differences that may exist between countries or audit firms, we analyzed disclosures from countries where a large enough number of reports were published for statisical analysis to be significant.

We selected among reports from these countries a sample of more than 900 reports where income taxes paid have been disclosed and identified as such, and for which the auditor’s firm was one of the four most represented in Europe. Other large audit firms exist in Europe, but with an uneven presence across countries that did not allow for statistical comparison.


While this is not the main point for this article, but as readers will certainly wonder: on an average basis in Europe, none of the firms performs significantly better or worse than the others.

If we drill down to the country level however...

The observation of the firms auditing reports where the error on income taxes paid can be found in a single country immediately highlights that there is no consistent level of application within a country of within a firm:

- While there are no errors in reports audited by Firm A in Norway, Netherlands or Portugal, the only reports in Belgium where such errors can be found are those audited by that same Firm A.

- In the same fashion, all reports bearing the error in Norway are audited by Firm B while reports audited by Firm B in the three other countries never bear the error.

- In the same fashion, all reports bearing the error in Netherlands are audited by Firm C while reports audited by Firm C in the three other countries never bear the error.

- In the same fashion, all reports bearing the error in Portugal are audited by Firm D while reports audited by Firm D in the three other countries never bear the error.

This is evidence of the active role the auditor plays in improving the quality of the electronic reports.

There are many factors and stakeholders acting on the quality of reports; the software used to create the report can certainly be a factor, for instance. But there is little reason to assume that there is a strong correlation between the software used to create the report and the firm responsible for the report's external audit.

On the opposite, if we assume that every firm receives the same amount of reports with the sign issue on average, and making the reasonable assumption that no auditor asked an issuer to describe paying taxes to be a cash inflow, this data points to auditors being the ones to be thanked for a lot of the fixes. Without the auditor's review from firms A, C and D in Norway, the average rate of error would probably be close to or higher than we see for firm B, more than 50%.

This is also evidence of the limited knowledge sharing between countries even among firms.

There are other countries whose data makes this even more apparent, where there is a more homogeneous consistency across reports, for the better (special note for Denmark, the only country with a spotless record) or the worse. Auditors in Spain and Italy in particular seem to be isolated from the knowledge of their European peers.
The situation with France is also somewhat special in this analysis, since reports are usually audited by 2 firms.

A closer look at Firm B

Let’s take a closer look at reports audited by Firm B across Europe. As a baseline, we also include for comparison data from UK reports where the electronic layer of the report is not audited, and Finland reports where audit is done partially (75%), on a voluntary basis.

While the firm’s audit seems to have eliminated the error in many countries, with a spotless performance, reports from Spain, Italy and Greece audited by the firm actually perform worse than those in countries without audit, which leads us to think that the process might be quite different in Firm B for these countries.

Similar observations can be made with the other three firms, although with different countries for each firm.

Feel free to contact us for further information on how we collect the data and perform analysis of its quality, or if you would like to access more detailed versions of this data.

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Marc Houllier
Marc Houllier
Cofounder & CTO