ESEF is at the forefront of the digital transformation of financial reporting, which is rapidly changing the way financial information is shared and analyzed. As we approach 2024, companies need to be well-prepared to ensure compliance.
In this blog, we will explore nine ESEF compliance insights and best practices that will be crucial for navigating the financial reporting terrain in the coming year.
Unpacking Essential ESEF Taxonomy Principles
Teams engaged in ESEF document creation should acquire a thorough understanding of the ESEF taxonomy prior to implementing XBRL tagging for the line items in their Annual Financial Reports (AFRs). It is recommended to utilize ESEF tags extensively within the AFRs. However, in instances where no suitable tags are available in the reference taxonomy for company-specific disclosures, extension elements or ‘custom tags’ may be employed. It is crucial to exercise caution when using extension elements, as their inappropriate application could result in errors and inconsistencies within the ESEF document. Additionally, when using extension elements, it is essential to anchor them to ESEF taxonomy elements with the closest accounting significance.
The preparation of the company taxonomy is an integral aspect of ESEF document readiness. This taxonomy outlines ESEF Taxonomy elements and custom tags relevant to your disclosures, presenting them through four linkbases: Presentation linkbase, Calculation linkbase, Definition linkbase, and Label linkbase.
Strategies for ESEF Success in 2024
Originally introduced to facilitate easier access to financial information and improve comparability across reports, ESEF compliance is a dynamic journey that demands the proactive involvement of businesses. This prelude sets the stage for exploring crucial insights and best practices that will guide organizations through the intricacies of ESEF compliance in the upcoming year.
Now, let’s delve into the essential tips for navigating the ESEF compliance landscape in 2024:
Tip 1: Early Adoption and Preparation – One of the key insights for ESEF compliance in 2024 is the importance of early adoption and preparation. Companies should not view compliance as a last-minute task but rather as an ongoing process. Starting early allows organizations to understand the nuances of ESEF requirements, evaluate the impact on their financial reporting processes, and implement necessary changes efficiently. Early adoption also provides a buffer for unexpected challenges, ensuring a smoother transition to compliance.
Tip 2: Embrace Inline XBRL – Inline eXtensible Business Reporting Language (XBRL) is a crucial aspect of ESEF compliance. Unlike traditional XBRL, where financial statements and XBRL tags are separate, inline XBRL integrates them, making the process more streamlined and user-friendly. Adopting inline XBRL not only facilitates compliance but also enhances the quality and usability of financial information. Companies should invest in training and tools that support inline XBRL to optimize their reporting processes.
Tip 3: Do Validation Checks To Identify Errors – It is essential to run your iXBRL package through a validator before final submission to identify the errors, warnings, and calculation inconsistencies. The three types of validations to take into consideration are as follows:
- a) Software validations: For your ESEF document to successfully enter the regulator’s portal, it is advisable to ensure that the latest ESEF Conformance Suite validations are installed in the software you are using to generate the ESEF package.
- b) Auditors’ validations: Running your report by an auditor can help reduce the possibility of warnings or filing errors. Auditors may use their review tools to identify all the errors that can obstruct your filing.
- c) Regulator’s validations: The regulator’s validations require you to rectify errors in your report in order to move past the regulator’s gateway. Unlike errors, warnings will not block your ESEF Filing submission.
Tip 4: Data Quality and Accuracy – Ensuring data quality and accuracy is a perennial best practice, but it takes on added significance with ESEF compliance. Inaccurate or inconsistent data can lead to compliance issues and erode stakeholder trust. Implementing robust data validation processes and leveraging automated tools for error detection can help companies maintain the integrity of their financial information. Regular audits and reviews should be conducted to identify and rectify any discrepancies promptly.
Tip 5: Plan Well to Avoid Last-minute Hassles – Preparing annual reports in iXBRL format can be a time-consuming activity since ESEF is a fairly new format. The compliance process can be tedious as it involves the aggregation of data from different parts of the organization. One needs to factor in extra time for the auditing process as well since any changes suggested will need to be incorporated into the document. Companies also need to budget time to get the annual report designed so it can be proudly displayed on the company website. Working with external experts will help you work around time constraints and make the compliance process smoother.
Tip 6: Collaboration Across Departments – ESEF compliance is not solely the responsibility of the finance or compliance teams; it requires collaboration across various departments. IT, legal, and communication teams play integral roles in the successful implementation of ESEF requirements. Establishing cross-functional teams and fostering open communication channels will be crucial for addressing challenges collectively and ensuring a holistic approach to compliance. Regular training sessions can also enhance the understanding of ESEF requirements across departments.
Tip 7: Arrange Your ESEF Zip Package Right – A Report Package is a specially formatted ZIP file required to submit an ESEF report consisting of multiple files. The structure of the iXBRL package as well as folder placement should be in accordance with ESMA guidelines. The contents within must be properly structured and formatted so that XBRL software can automatically discover the XBRL report within the ZIP.
The Report Package consists of metadata that should conform to the taxonomy file, the structure of which is defined by an XML schema. Failing to conform to the prescribed Report Package structure can disable a report to open in XBRL software and the document can be rejected by the regulator’s gateway.
Tip 8: Stay Informed and Adapt – Regulatory landscapes are dynamic, and ESEF is no exception. Staying informed about updates, guidance, and best practices is essential for maintaining compliance. Companies should actively engage with regulatory bodies, industry associations, and professional networks to stay abreast of changes and emerging trends. Additionally, organizations should cultivate a culture of adaptability, allowing them to respond swiftly to regulatory amendments and evolving compliance standards.
Tip 9: Do A Test Filing Before Actual Submission – ESEF filers would do well to conduct a test filing before their actual ESEF submission. This would help them be aware of the regulator’s filing requirements and identify specific pre-requisites if any. The test filing needs to be done at least three days prior to the actual filing. An early review and testing will ensure there are no last-minute surprises.
The future of financial reporting is digital, and machine-readable reports are the way forward. ESEF compliance transcends being a mere regulatory requirement; it presents an occasion for companies to enhance their financial reporting standards and cultivate trust among stakeholders in a progressively intricate business milieu.
We trust that our tips on ESEF filing will prove beneficial to you. To achieve a high-quality, prompt, and cost-efficient iXBRL filing, we advise selecting the appropriate software and support team. Leveraging our experience as Software Solution Providers, we have collaborated with numerous clients to streamline the reporting process. Our product, IRIS CARBON®, guarantees a seamless and error-free experience for your XBRL/iXBRL compliance reporting.