ESEF Report 2023: In-Depth Quality Analysis and Trends for Improved Compliance

Each year, companies listed in the EU are obliged to file their annual reports in the iXBRL format, as mandated by the European Securities and Markets Authority (ESMA). Given that these reports are made publicly available, it is crucial that they are flawless. The main aim of the mandate is to enhance the transparency, accessibility, and comparability of financial reports. Therefore, a comprehensive quality analysis of these reports is essential to understand the current state of compliance and identify areas for improvement. 

Scope of the Quality Analysis

We did the 2023 quality analysis where we examined the ESEF reports of 1,426 companies spanning 23 industries across 11 countries. The analysis involved tagging a total of 355,140 concepts, with approximately 33,000 extension concepts used for specific tagging requirements. This extensive review provides a broad perspective on the quality of ESEF reports and highlights common discrepancies and errors. 

Trend Analysis: 2021 vs 2023

In 2022, we conducted a similar analysis using the 2021 ESEF reports. This allowed us to perform a trend analysis of the changes in discrepancies across the 11 countries. 

As you can see in the above chart, there have been notable changes in the discrepancies. In some countries, like Sweden and Greece, companies have successfully been able to reduce the discrepancies in their ESEF report. Conversely, in countries like Denmark and the UK, discrepancies have increased. For instance, in Denmark, nearly all reports analyzed contained one or more discrepancies. 

Reason for decline in quality of ESEF reporting

The main reasons for the decline in the quality of ESEF reports include the increased scope of tagging over the last two years, expanding from tagging of only the financial statements to block tagging of notes. Additionally, other factors contributing to the decline are the non-mandatory audit of ESEF reports in countries like the UK, the quality of the software used for tagging and the expertise of the software provider, and significant delays in the filing of the ESEF reports. 

Country-wise quality analysis

Here in the country-wise analysis, the leading country in terms of discrepancies is Denmark and our in-depth study revealed that the majority of errors fall into two categories: technical errors (around 22%) and XBRL specification errors (around 53%). Common examples of XBRL specification errors include “Invalidcontextperiod in the report” and “non-numeric concepts in calculation linkbase.” Technical errors often stem from flaws like hidden facts or external links within the XBRL report.

Industry-wise quality analysis

In the analysis, we observed that the maximum percentage of discrepancies are found in the construction and mining industry followed by the financial industry. The main reason is the use of extension levels of extensions in the tagging of the reports and the complexity of the reports being prepared. 

Errors vs Warnings

Here’s a breakdown of the discrepancies found in the reports: 

• Errors: These are critical issues that need to be resolved before submitting the report to the regulator. We found a total of 28,808 errors. The primary sources of these errors are: 

• Technical errors: It mainly occurs because of hidden fact values in the iXBRL document which do not get displayed and if the language of the report is not being defined in the iXBRL file. 
• Non-compliance with extension taxonomy guidelines: The extension taxonomy guideline error occurs when there are schema errors due to invalid characters in an iXBRL document and wrong units assigned to numeric facts.  

Error report

• Warnings: These are less critical and do not prevent the filing but should still be addressed. We found a total of 20,630 warnings. The main sources of these warnings are: 
• Calculation inconsistencies i.e. rounding off difference 
• Non-compliance with label guidelines: It occurs when duplicate labels are defined in the extension taxonomy. 

Warning report

Tips for High-Quality ESEF Filings

• Chose a reputed ESEF software/service provider 

• ESEF zip package size limit as per regulator to be taken into consideration 

• The name of the zip package as per the naming convention of ESMA/regulator should be taken to consideration 

• The validator of the service provider tool should be updated as per the latest ESMA manual and the confirmation suit 

• Table structure requirement: Going forward the tables within the tagged notes should be in human-readable format. The software should be able to manage the same. 

• Calculation warnings (if it comes when one element is reported in different link bases) due to dimensional spills are acceptable and don’t impact filing 

Conclusion

As regulations in digital reporting continue to evolve, ensuring the accuracy and quality of ESEF reports has become paramount. The comprehensive quality analysis for 2023 underscores the importance of addressing discrepancies and adopting best practices for flawless reporting. Companies must choose reliable software solutions to navigate the complexities of ESEF reporting effectively. 

IRIS CARBON® is a trusted choice for businesses seeking to enhance their ESEF reporting. Its advanced features and adherence to regulatory standards help ensure that reports are accurate, compliant, and free from errors. By leveraging IRIS CARBON®, companies can achieve high-quality ESEF filings and maintain transparency and reliability in their financial disclosures.