iXBRL standard adds an extra layer of quality to a company’s annual financial reports.
There is a huge benefit of using a software solution that would make the process of filing your financial reports far way smoother.
Now the question arises what to look for in an SEC iXBRL financial reporting software?
We have come up with a checklist, that you can keep handy:
Check for the Fundamental Features
The SEC iXBRL financial reporting software should be cloud-based and collaborative.
It should cater to smooth integration between numbers and text while providing easy document management.
Check for the XBRL International Certification
It is important to check if the iXBRL financial reporting software that your company chooses is XBRL International (XII) certified.
XII provides a list of certified software that is compliant with the latest specifications, along with their providers on the website.
Make sure that the vendor you select is a member of jurisdiction such as XBRL US.
Check for the Right Credentials
Effective compliance with the SEC iXBRL mandate hinges on the track record and accreditations of the XBRL software and service provider that you choose.
It would help to check for:
- How long a software vendor has been in the XBRL/iXBRL space?
- How many clients, and across how many markets?
- What kind of expertise do they bring?
- How many SEC iXBRL mandates have their solution catered to in the past?
Check for Third-Party Quality Rankings of XBRL
Look for any independent verification of quality, especially on the XBRL side.
Different solutions integrate and leverage the standard differently, and the best ones squeeze in as much as they can from the specifications to offer their clients the highest quality.
There are independent third-party experts in the US who analyze and rank the quality of software based on XBRL/iXBRL filings published with the US SEC.
Rankings are a good way to get a feel for how well software has leveraged the innate advantages.
XBRLogic, an independent US-based quality evaluator publishes rankings each year.
IRIS CARBON stands high ranked as #1 for XBRL quality in all four quarters of 2021. What more? We have been consistently scoring this position since 2019.
(Check out how we rank on XBRL quality: https://iriscarbon.com/xbrl-quality-scores/)
Check for The Right Automation Features
Automation in tagging is possible to an extent in XBRL.
However, be wary of solutions that promise to automate the entire tagging process.
It has been a pain point for companies where they need to retag every time they make a report, which is a cumbersome and time-consuming process.
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:
- Presentation linkbase (Replicates your AFR in terms of its presentation)
- Calculation linkbase (Defines the arithmetic relationships in your AFR)
- Definition linkbase (Depicts the anchored relationships)
- Label linkbase (Defines the labels you use in your AFR)
Find everything you need to know about Company Taxonomy.
6. Review your tags
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.
You should look for a tool that requires tagging only the first time.
And for the subsequent quarters and filings, you can use smart features like the roll-forward feature, wherein all your current tags are retained.
That way, you need not tag every single time for future filings.
Check for Customer References and Testimonials
Nothing beats feedback from actual users of the software, who can share their experience with you.
As you go down your evaluation process, do not hesitate to ask (or look) for testimonials and references.
Whether it’s a firm in your jurisdiction or elsewhere, hearing from users who have hands-on experience with the solution makes a tremendous difference.
(See what our clients have to say about us: https://iriscarbon.com/customer-stories/)
Check for Availability of Expert XBRL Support
A new filing requirement SEC mandate often needs extra careful observation and implementation.
Make sure the SEC iXBRL financial reporting software provider should be able to offer you support and expert assistance when you need it the most.
Some points to note:
- Check whether the provider operates in your time zone.
- Ask them how you can reach their support teams (through a phone call, email, or online chat).
- Make sure if there are additional charges involved in providing support in extra hours.
- Most importantly, check if the software can sail you through the many taxonomy and mandate revisions that come up through the years.
The ideal software vendor would let some of his knowledge and expertise rub off on you.
Maybe offer you services support until you feel comfortable in the saddle, or allow you to understand what happens at his end as his team helps you through the transition, and makes sure you re invested in the process.
They provide you with full support whenever you need it.
In Conclusion
There is no doubt the SEC mandate is bound to make your regulatory compliance a more comfortable affair and lead to a more intelligent future.
However, the importance of exercising care in choosing an iXBRL software cannot be stressed enough.
Your decision would have a bearing on how hassle-free your filing process is going to be going ahead.
Do stay tuned for many such articles that ease your decision-making process.
