23. January 2020

Cabinet submits Draft bill on the implementation of electronic financial reporting according to ESEF

On 22 January 2020, the German Federal Government, submitted the draft bill (government draft) of a law to implement the amendments to the EU Directive 2013/50/EU (Transparency Directive Amendment Directive) with a view to a uniform electronic format for annual financial reports (Link to the draft bill – only in German).

The government draft contains proposals for the implementation of Article 4 (7) of the Transparency Directive, according to which annual financial reports must be prepared in a uniform European Single Electronic Format (ESEF) with effect from 1 January 2020. Technical Regulatory Standards to specify this electronic reporting format are contained in the Delegate Regulation (EU) 2019/815 and (EU) 2019/2100 (ESEF Regulation).

The government draft deviates from the proposals in the draft bill jointly submitted on 20 September 2019 by the Federal Ministry of Justice and Consumer Protection and the Federal Ministry of Finance (we reported). According to the government draft, the regulations for the publication of annual and consolidated financial statements under German Commercial Code for capital market-oriented companies will be revised and their quality assurance be addressed. However, the regulations concerning the (written) preparation of the elements of the annual financial report remain largely unchanged.

The main contents of the draft continues to be proposed changes in the commercial law for capital market-oriented companies:

  • Publication of annual and consolidated financial statements, management and group management reports in accordance with § 328 of the German Commercial Code, prepared in an electronic reporting format specified by the ESEF Regulation, incl. tagging of the IFRS consolidated financial statements based on the ESEF taxonomy
  • Submission of the of the aforementioned documents prepared in the electronic reporting format to the auditor  
  • Audit of the submitted electronic reporting format, including a conclusion in the auditor’s opinion on whether the financial statements prepared in the electronic reporting format do or do not comply with the ESEF requirements
  • Clarification that the electronic reporting format is subject to the enforcement procedures pursuant to § 342b of the German Commercial Code

Furthermore, the annual and consolidated financial statements, management and group management reports shall be complemented by written statements made by the persons responsible within the issuer (that the financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer). These statements will also be subject to the publication under ESEF.

In company law, in contrast to the draft bill dated 20 September 2019, no changes are proposed with respect to the information requirements for shareholders in the meetings to receive or adopt/approve the annual/consolidated financial statements or to pass resolutions on other measures. Consequently, companies continue to be required to display documents on business premises and to issue hard copies.

The securities trading law remains basically unchanged after the proposals, since the ESEF Regulation has direct effect for the preparation of annual financial reports (notwithstanding any exemptions) and its components.

The legislation is time-critical, as the new format requirements are to be applied for the first time to financial statements prepared for financial years beginning after 31 December 2019. The draft bill is therefore declared to be particularly urgent within the meaning of Article 76 (2) sentence 4 of the Constitutional Law for the Federal Republic of Germany.