9. June 2023

European Commission consults on first delegated act on ESRS, deadline 7 July 2023

On 9 June 2023 the European Commission (COM) has issued its draft delegated act on Set 1 of European Financial Reporting Standards (ESRS).

The consultation comprises the draft delegated act and two annexes containing the ESRS in Annex I and a glossary including a list of acronyms in Annex II. The draft based on the Technical Advice provided in November 2022 by the European Financial Reporting Advisory Group (EFRAG) comprising twelve draft ESRSs (so called “Set 1”). After having comprehensively reviewed this package the COM now proposes a number of modifications to the original EFRAG advice, which are summarised in the Explanatory Memorandum to the draft delegated act. Among other things, the materiality assessment to be performed by entities will be significantly more relevant as all disclosure requirements except for ESRS 2 will be subject to the materiality assessment. Furthermore, transitional periods for companies with less than 750 employees are also proposed for a much wider range of disclosures as well as simplifications of some requirements in detail.

With these modifications the COM aims at ensuring proportionality and facilitating the correct application of the standards by undertakings. Respondents may submit the feedback until 7 July 2023.

The DRSC had submitted its Comment letter on EFRAG’s consultation drafts in August 2022 and a further letter to the COM in January 2023 and called for, among other things, greater consideration of the individual materiality assessment and the capacities of medium-sized entities.

Background: The EU Accounting Directive (Directive 2013/34/EU), as recently amended through the CSRD, requires a number of entities in the EU and some non-residential entities to prepare sustainability reports according to ESRS. EFRAG has been mandated to develop these standards and give technical advice to the COM. The final delegated acts are expected to be adopted by the COM in July 2023.