Finland on December 21, 2020, joined most EU member states in opting for a yearlong deferral of the European Securities and Markets Authority’s ESEF mandate. However, listed Finnish companies that wanted to go ahead with the electronic filings were free to do so with the FIN-FSA. Subsequently, a sizable number of eligible companies showed interest in voluntary ESEF filings. We have done an in-depth study of their iXBRL reports.
Facts and objectives of our study
As of April 21, 2021, a total of 137 of Finland’s 145 listed entities filed their annual reports. And a little more than half of the 137, i.e., 70 companies had complied with the ESEF mandate and filed their reports in iXBRL. This is a significant number in comparison to most other regions in the EU where filing was voluntary for FY 2020.
The goals of our study were twofold:
To analyze the quality of ESEF filings based on validations using the following parameters:
Market cap analysis
Types of quality issues
To analyze the extensions used in these ESEF filings based on:
How aligned the companies are with the ESEF taxonomy, and
Industry-wise analysis of extensions
In order to conduct this study in a structured and unbiased manner, we followed a 4-step process to analyze all the 70 ESEF iXBRL filings:
Identify companies that have complied with ESEF from the OAM’s website.
Download the ESEF iXBRL zip files from the OAM website.
Validate the ESEF zip file using our in-house XII-certified validator IRIS Bushchat®.
Analyze the validation results (errors and warnings) and review extensions.
The 70 ESEF filings were spread across 14 industries. A total of 7509 concepts were tagged and 710 extensions were created across these filings.
Let’s get deeper into the parameters we used to analyze the quality of these ESEF filings.
We used 4 parameters to analyze 70 ESEF iXBRL filings based on validations as previously stated. The first of those was the pass/fail analysis.
The pass/fail analysis bifurcated these 70 reports into two broad categories. Companies whose filings showed no errors and warnings at all were categorized as having passed this test. Consequently, companies whose ESEF filings had even one error or a warning or both were categorized as having failed this test.
For the purpose of this study, an error is defined as an issue in an ESEF filing that needs immediate attention. A filing with error risks being rejected by the OAM if the error(s) is not rectified. An example of this is a faulty ESEF iXBRL zip package which is not in compliance with the ESEF reporting manual.
A warning is less severe than an error and does not impede submission through the OAM as it may still be considered a valid ESEF filing. Warnings need to be checked and corrected, nonetheless. Rounding errors are an example of this type of issue.
Of the 70 ESEF iXBRL filings, only 34% or 24 filings scored a 100% pass in this test, i.e., no errors and warnings at all. The remaining 46 ESEF filings had a varying mix of errors and warnings.
Across these 70 ESEF filings, 289 incidences of errors and 1722 incidences of warnings were found. Errors were thus seen about 15% of the time whereas warnings were seen about 85% of the time.
Moving on to our market cap analysis, the companies we studied were categorized into:
Small caps with a market cap < $2B
Mid-caps with a market cap > $2B and < $10B, and
Large caps with a market cap > $10B
55 companies (78%) belonged to the first category and naturally accounted for the most ESEF filings in our study. Of the remaining 15 companies, 10 and 5 companies belonged to the remaining two categories, respectively.
When looking at industry-wise ESEF iXBRL filing quality, we found that companies in the consumer non-cyclical and food sectors had the most errors in their filings on average. The most errors by absolute numbers (at 70) were found in the industrials sector. However, these were spread across 16 companies and represented the largest sector in the entire market.
Last, but not least, all the errors found across these 70 filings were categorized into 7 types: Extension Taxonomy Guideline, Duplicate Facts, Technical Errors, Label Guidelines, Calculation Link Base Not Prepared, Taxonomy Package, and Anchoring Guideline. Descriptions for these as well as their counts can be found in the table below.
Analysis of Extensions
When we analyzed extensions created and used in the Finnish ESEF filings, companies from three sectors jumped out to us for having the most extensions per number of concepts tagged. These were from the Insurance, Utilities, and Financial sectors. The average extension rate across all companies was found to be approximately 9%. The table below gives a breakup of extensions and their usage for tagging concepts across all sectors.
Future of ESEF and use cases
The utility of the European Single Electronic Format to facilitate greater accessibility, transparency, and comparability of financial and non-financial data is unquestionable. We would like to demonstrate two real-world use cases and highlight the advantages of XBRL in the process.
The first of these is the ease with which it facilitates analytics and comparisons for all stakeholders including regulators, investors as well as analysts. For example, comparing YoY performance with these tools is just a matter of a few clicks. Here we can see the financial performance of Kone Oyj across two normalized fiscal periods. This facilitates easy comparison and allows concerned stakeholders to anticipate emerging trends.
Along with internal comparisons, the use of XBRL also facilitates peer benchmarking allowing for a deeper analysis across a host of different parameters. Insights gained from this kind of evaluation can prove invaluable to those seeking it.
This presentation was originally prepared for the 27th XBRL Europe Digital Week on the 29th of April 2021. A link to the same can be found here.
IRIS CARBON® is a cloud-based, collaborative platform that helps issuers prepare Annual Financial Reports (AFR) and also meet iXBRL reporting requirements as per the ESEF iXBRL mandate. The platform comes with a robust set of features and unlimited support for the preparation, review, and filing of AFR and iXBRL documents.