The European Single Electronic Format (ESEF) mandate, which is in force in all EU-regulated markets and the United Kingdom, helps companies prepare annual reports in a format that facilitates machine-readability. The Inline XBRL (eXtensible Business Reporting Language) format, allows companies to place machine-readable tags against their disclosures from the backend of an HTML report. The resultant xHTML or iXBRL report is both human-readable and machine-readable. Such a report is more accessible and facilitates more efficient analysis and comparison across companies.

For effective ESEF iXBRL reporting, companies need to understand the ESEF taxonomy, which is a collection of digital labels representing accounting concepts that pertain to European companies that use the IFRS Standards. A thorough understanding of the ESEF taxonomy is vital if companies have to ‘tag’ or label their disclosures with the most appropriate machine-readable tags. In case a company needs to make entity-specific disclosures, for which an appropriate ESEF taxonomy label may not be available, the company may form an extension or custom tag.

ESEF rules indicate that such an extension or custom tag needs to be ‘anchored’ to a base ESEF taxonomy element. Companies need to ensure that the base taxonomy element to which they intend to anchor an extension tag completely subsumes the accounting meaning of the extension concept. However, it has been noticed that companies often make errors by anchoring their extensions to concepts with wider or narrower meanings than intended. We discuss a few examples of inappropriate anchoring in this blog.

All examples and screenshots have been taken from: https://www.xbrl.org/guidance/esef-rules-anchoring-extensions-examples/

1. Inappropriate Use Of The “Other” Concept

Let us bear in mind that any base taxonomy concept starting with the word ‘Other’ is a residuary concept, which ideally must not be used to represent ESEF anchoring relationships. The ‘other’ concept can also not be used to represent items for which a separate disclosure or value exists.

With this in mind, let us examine two scenarios below:

a. Anchoring using the ‘other’ concepts when Items are separately disclosed in the notes

In the following snapshot of a Statement of Financial Position, the line item ‘Investment securities’ has been represented through an extension…

This line item has been anchored to the base taxonomy concept ‘Other financial assets’

However, this ESEF anchoring relationship is incorrect because the documentation label for the ‘other’ concept says it is only meant for items that are not separately disclosed.

However, the item ‘investment securities’ has a separate disclosure in the notes that says it consists of financial assets at fair value through other comprehensive income and financial assets mandatorily at fair value through profit and loss – both of which are represented by base taxonomy concepts.

Therefore, the correct way to anchor the line item ‘Investment securities’ would be to anchor it to the wider concept that is ‘Financial assets, at fair value’ and also to the two narrower concepts of which it is an aggregation…

b. Anchoring using the ‘other’ concept when the extension is more specific than an aggregation of immaterial items

In the following snapshot of a Statement of Comprehensive Income, Profit, or Loss, by Nature of Expense, the line item ‘Provisions’ has been represented through an extension.

This extension item has been anchored to the base taxonomy concept called ‘Other expenses, by nature.

However, this ESEF anchoring relationship is incorrect because the line item is not an aggregation of immaterial items. Moreover, the documentation label of the ‘Other’ concept used for anchoring in this example says that it is to be used to represent line items “that the entity does not separately disclose in the same statement or note”. Hence, the concept is not an appropriate wider anchor in a case where the amount is separately disclosed.

There is no concept in the base taxonomy for the provision line item. However, a more encompassing concept exists called ‘Expenses, by nature’ which is an aggregation of all expenses, by nature. The following is the correct ESEF anchoring relationship for Provision expense:

2. The anchor is “too wide”

Any base taxonomy element that is used for anchoring needs to completely accommodate the accounting meaning of the extension concept being anchored. However, there are cases where the anchor is ‘too wide’. Let us understand how an anchor that is ‘too wide’ can be avoided.

a. Current and Non-current Assets

In the following example, you can see excerpts from a classified Statement of Financial Position where two extension concepts have been used to represent the current and non-current amounts of ‘Capitalised contract costs’.

The following was the ESEF anchoring relationship formed for the line items shown above:

The item ‘Current capitalized costs’ has been anchored to the base taxonomy concept ‘Current assets’; the item ‘Non-current capitalized costs’ has been anchored to the base taxonomy concept ‘Non-current assets’.

However, this ESEF anchoring relationship is inappropriate because the concepts ‘Current assets’ and ‘Non-current assets’ constitute too wide an accounting meaning. There are other concepts in the base taxonomy with a wider yet closer accounting meaning to current and non-current capitalized costs (the line items under consideration).

A thorough check of the base ESEF taxonomy would reveal that the concept ‘Assets recognized from costs to obtain or fulfill contracts with customers is the closest concept with a wider accounting meaning to current and non-current capitalized costs. So, the appropriate ESEF anchoring relationship is as follows.

b. Equity

In the following excerpt from a Statement of Financial Position, the line item ‘Reserves and retained earnings’ has been represented by an extension element.

The following are the ESEF anchoring relationships formed for the line item, where the narrower concepts – Other reserves and Retained earnings – are appropriate, but the wider concept – Equity – is not.

‘Equity’ is a concept wider than the extension concept. However, it is not a base taxonomy concept with the closest accounting meaning to the extension concept. It is, therefore, not the appropriate anchor.

Moreover, ‘Equity’ is an aggregation of ‘Equity attributable to owners of parent” and “Non-controlling interests”. However, the entity in question does not have non-controlling interests. Therefore, the concept with the closest accounting meaning to the extension concept is ‘Equity attributable to owners of a parent’. The appropriate ESEF anchoring relationship is displayed below.

3. Appropriate use of “other” concept

We now discuss how an ‘Other’ concept can be appropriately used as a wider anchor when its documentation label in the base taxonomy does not indicate it is for items not disclosed separately.

In the following excerpt from a Statement of Cash Flows, the items ‘Other cash receipts from sales of equity instruments of other entities classified as investing activities and ‘Other cash receipts from sales of debt instruments of other entities classified as investing activities’ have been represented with extensions.

The appropriate ESEF anchoring relationship for these extensions is as follows…

Both extension items can be anchored to the ‘Other’ concept in this case because the base taxonomy concept ‘Other cash receipts from sales of equity or debt instruments…’ is an aggregation of the two items. The base taxonomy concept is, therefore, considered to have a wider accounting meaning than the two items.

4. Anchoring a ‘net’ concept

In the following excerpt from a Statement of Cash flows, the item ‘Net interest paid’ is represented by an extension element.

The following relationship, where ‘Net interest paid’ is anchored to the base taxonomy concept ‘Interest paid, classified as operating activities’ is inappropriate. That is because the extension has a ‘net’ meaning. It, therefore, includes both interest paid and interest received.

On the other hand, the base taxonomy concept ‘Interest paid…’ has a ‘gross’ meaning. It is, therefore, not wide enough to accommodate the ‘net’ extension concept.

The appropriate ESEF anchoring relationship, in this case, is as follows…

While trying to find an appropriate anchor concept in the base taxonomy, ESEF filers need to consider the ‘net meaning of the extension concept.

In this particular case, there was no ‘net’ element for interest paid, net of interest received. Therefore, the extension was anchored to the base taxonomy concept ‘Net cash flows from (used in) operating activities.

5. Inappropriate narrower anchoring

We will now look at an example of an inappropriate ‘narrower anchoring’ decision. This inappropriate anchoring decision has been taken due to not considering information in the notes to financial statements.

In this example, the extension concept consists of two or more base taxonomy concepts. The requirement then is for users to anchor the extension to each of those base taxonomy concepts.

Here’s an excerpt from an unclassified Statement of Financial Position where the item ‘Goodwill and acquired intangibles’ has been represented through an extension element.

The inappropriate ESEF anchoring relationship that was formed in this example is given below.

The decision of a wider anchor ‘Intangible assets and goodwill’ was appropriate in this case. However, it was inappropriately decided that the extension concept did not need a narrower anchor relationship.

The decision was based on the flawed thinking that the base taxonomy had a concept only to represent the ‘Goodwill’ component of the extension and none to represent the ‘acquired intangibles’ component. So, it was decided that no narrow ESEF anchoring relationship was needed since the extension was not thought to consist of two or more base taxonomy concepts.

In the notes to accounts, it is shown that the extension concept ‘Goodwill and acquired intangibles’ consists of Goodwill, Brand names, Investment agreements, and Distribution channels.

The base taxonomy does not have concepts for ‘Investment agreements’ and ‘Distribution channels’. However, the base taxonomy does have a concept for ‘Brand names’.

Therefore, the extension concept ‘Goodwill and acquired intangibles’ consists of two or more base taxonomy concepts – Goodwill and Brand names – which means a narrower ESEF anchoring relationship is possible with those base taxonomy concepts.

Hence, the appropriate ESEF anchoring relationship is as follows…

6. Inappropriate anchoring of entity-specific domain member

The following example will demonstrate how the anchoring requirement in the Regulatory Technical Standard applies not only to entity-specific concepts but also to elements. While ESEF anchoring relationships are often automatically prepared by ESEF reporting software, the users need to be mindful of anchoring that relates to the accounting meaning and/or the scope of the disclosure.

In this example, the company has disclosed not only ‘Net income (loss) per ordinary share’ but also ‘Net income (loss) per savings share’.

If the company had not disclosed the second line item, which is ‘Net income (loss) per savings share’, then the first line item ‘Net income (loss) per ordinary share’ could have been represented by the following dimensional structure, as available in the base taxonomy.

Because of the second line item, the data modeling of the table needs to be revisited. The company has created the following anchoring for the entity-specific member ‘Savings shares [member]’ to represent the second line item.

Inappropriate Anchoring 1

Inappropriate Anchoring 2

Both ESEF anchoring relationships are inappropriate because savings shares do not have the same accounting meaning as ordinary shares. Not that there is no problem with the ‘Earnings per share [table]’ as that table does not refer to ordinary shares specifically.

Establishing the right ESEF anchoring relationship

Examining the characteristics of savings shares as disclosed in this report, it can be confirmed that they are classified as equity and not as debt and they do not meet the definition of ordinary shares under IAS 33 since they receive preferential dividends – which means they are not subordinate to all other equity instruments.

The ESEF preparer, in this case, has decided that this does not meet the criteria for preference shares either and has created an entity-specific member, ‘Savings shares [member]’, instead of using the ‘Preference shares [member]’ which is available in the base taxonomy.

Please note that the focus of this write-up continues to be anchoring and not tagging decisions.

In such a case, there is a need for manual intervention in the dimensional structure to set up the appropriate ESEF anchoring relationship since ESEF software will not be able to take accounting meaning into consideration.

To form an appropriate ESEF anchoring relationship, an entity-specific axis can be avoided as the ‘Classes of share capital [axis]’ can be used under the ‘Earnings per share [table]’.

This brings us to the end of this guidance on anchoring. Readers might come to believe that ESEF extensions and anchoring are more complicated than expected. However, with the assistance of IRIS CARBON® experts and high-quality software, you can ensure you do not miss these intricacies while preparing your ESEF reports.

All examples and screenshots have been taken from: https://www.xbrl.org/guidance/esef-rules-anchoring-extensions-examples/

For any assistance with effective and high-quality ESEF reporting, get in touch with us.

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