European companies must now submit their Annual Financial Reports (AFRs) to national regulators using the European Single Electronic Format (ESEF) called Inline XBRL (iXBRL). The European Securities and Markets Authority (ESMA) iXBRL Mandate replaces the PDF Reporting with a digital format. This move facilitates the accessibility, analysis, and comparability of annual financial reports.
Your AFR complying with ESEF iXBRL reporting format must have XBRL-tags embedded in the document. The issuers often struggle when dealing with the tagging process. This blog aims to back you up with the 8 Useful ESEF Tagging Tips, carefully curated by our XBRL Experts.
1. Understand The ESEF Taxonomy Well Before You Start Tagging
The ESEF Taxonomy is an extension of the International Financial Reporting Standards (IFRS) Taxonomy. It consists of concepts known as XBRL Tags (or Elements). These XBRL-Tags comprise attributes like:
- Data Type (Monetary, Shares, Percentage)
- Balance Type (Debit or Credit)
- Period Type (Measuring over a Period of Time)
ESMA encourages using the ESEF taxonomy XBRL-tags to the best extent possible. Therefore, companies must use the taxonomy and apply these XBRL-tags to their AFRs. It is crucial to use the tags that pertain to your company-specific disclosures.
Download the latest ESEF taxonomy.
2. Form Extension Elements Sparingly/Appropriately
We are aware that issuers need to tag disclosures using the ESEF taxonomy. What happens if a specific element in the ESEF taxonomy is not present?
The answer is: When there is no suitable tag in the core taxonomy, companies should create custom tags or ‘extensions’. Extensions allow companies to tag entity-specific information. Extensions are much more difficult for users to analyze and compare. Hence, use extensions only when necessary.
3. Anchor Your Extensions To The Right ESEF Taxonomy Element
Adding ‘extensions’ could come with the disadvantage of data not being comparable. As different companies could create extensions in different ways. To remove this limitation the concept of ‘anchoring’ has been introduced. All company-specific extensions need to be ‘anchored’ to the ESEF taxonomy element(s) with the closest accounting meaning. This helps users to analyze extensions.
ESMA lays down several concrete examples of extensions and anchoring in their ESEF Reporting Manual.
4. Avoid The Basic Tagging Errors
Using the correct sign (+ or -) for a tag is important. Generally, tags are expected to be reported with a positive value. Their debit or credit nature is captured in the definition of the tag. It has often been observed that calculation errors in the reporting result from companies reporting a negative value for a concept that is expected to have a positive value and vice versa. These may even lead to calculation inconsistencies.
Watch out for the nature of the line items and decide whether you need to reverse the sign in your XBRL tagging or not. This will help you steer clear of one of the most common mistakes.
5. Developing A Company Taxonomy
Did you know about the significance of developing a ‘Company Taxonomy’ when compiling with ESEF Taxonomy?
Company Taxonomy is a tree structure to mirror the presentation of disclosures. The company taxonomy includes XBRL-tags from the ESEF taxonomy that fits most appropriately. Creating your company taxonomy entails using only those taxonomy elements that pertain to your disclosures – both the standard ESEF elements and any custom elements you have created – and representing them through the following four linkbases:
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- Presentation linkbase (Replicates your AFR in terms of its presentation)
- Calculation linkbase (Defines the arithmetic relationships in your AFR)
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- Definition linkbase (Depicts the anchored relationships)
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- Label linkbase (Defines the labels you use in your AFR)
Find everything you need to know about Company Taxonomy.
Tagging is not just a mere ‘label-matching’ exercise. It is mandatory to understand the accounting meaning of the tags used. So a company’s finance team must become well engaged in selecting the tag and reviewing them thoroughly.
Running your AFRs through tests or validation before final submission may help in identifying the
- Errors
- Warnings
- Calculation Inconsistencies
The ESEF mandate has an audit requirement that each EU nation formulates for itself. Find out whether your country has any such rule. If yes, you should run your report by an auditor. However, it is a good practice if you get your reports audited irrespective of a national ESEF audit requirement.
7. Get External Experts’ Help With Your ESEF Tagging
If this is your first year of complying with the ESMA. You might need external help with ESEF Tagging. There are experts in the field holding many years of experience, working across clients located in varied markets. A little help as you begin to enter this new world can go a long way.
They would let their knowledge and expertise surpass the hurdles coming their way. Look for a service provider who can offer support exactly when you need it. They shall make sure you are invested in the process.
8. Is your ESEF software good enough?
Lastly, it becomes significant to look out for an ideal software solution that provides you with clear visibility of the ‘tagging process’. The ability to see what XBRL tags are being applied to different numbers or parts of your AFR is much needed. The power to change things on the XBRL side should lie in your hand. This helps in coming up with last-minute edits in the disclosure (if needed). Remember, that each AFR is unique and your ESEF software must dwell as per your requirements. It should not be a cookie-cutter solution.
IRIS CARBON® comes prepared with a Checklist for Choosing the Right ESEF Reporting Software.
Conclusion
ESEF Tagging might seem like too much work. But there is never a problem that comes without a solution. Keep these tips handy when going through the process of filing your ESEF Reporting.
Stay tuned for more insightful blogs coming your way.
