Full Disclosure, recently had a chat with Anuradha (or Anu as she is known), Product Head, IRIS CARBON® , about ESEF Compliance Reporting and how companies should gear for the ESMA Mandate in the EU. Anu comes with extensive experience of working with both XBRL domain and technology and has led IRIS CARBON® to a successful launch across 5 countries. Here is a transcript of the interview.

ESMA mandate Question

You’ve seen XBRL implementations across several countries over the last 10 years and have helped many issuers and audit firms with smooth journey with XBRL/iXBRL. Why is the ESEF mandate being introduced? Is there any benefit for firms to move from filing in PDF to iXBRL?

Anu:

Regulators in the EU have been receiving annual reports in PDF files, and with PDF the data is locked in the report. Every regulator will need an army of people if they were to manually analyse the data that companies report to them. This is not a practical situation where the whole process is manual.

Inconsistencies in the reports and early signs of frauds or malpractices in reporting go un-noticed. The end result? Scams like Enron in the US, Steinhoff in South Africa bubble up out of nowhere creating a massive impact on the economy as a whole and raising questions on how things like this went undetected.

Hence came the pressing need to introduce a digital reporting format where information was easily available, and could be quickly retrieved using software. That is what iXBRL does – makes the report machine readable, and easy to process.

It’s not just for regulators. Investors and market analysts are constantly looking for quick information that can be used for making informed decisions. Inline XBRL helps companies get financial data out in the market quickly and accurately due to which comparison of information across peer companies can be done with a click of a button.

Companies, no matter big or small get the opportunity to attract investors globally. To facilitate this, we at IRIS CARBON offer our clients Interactive iXBRL Previewer link that they can use on their Investor Relations of the website.

In the long-run Inline XBRL is useful both of regulators and companies. Australian Tax Office alone reported savings of AUD 1.1 billion with a move to XBRL reporting. Banks in Netherlands have the ability to disburse loans quickly just in 4 days to the SME segment. The reason? SME data being submitted in XBRL. While these are a few examples, the benefit of moving to a digital standard come with effective reporting and that is what ESMA is aiming to achieve in the first year of the mandate.

ESMA mandate Question

With Europe moving to Inline XBRL (iXBRL) what advice do you have for issuers and audit firms?

Anu:

Start Planning Early. This is ‘THE’ advice I would give to anyone who needs to comply with ESEF iXBRL mandate.

While the mandate kicks-off only in 2020, and most companies need to file in 2021, the trend that I have seen in many countries is that decisions on how to go about the mandate is made towards the very end when the mandate is round the corner, and at that time it becomes a scramble, and companies are prone to making hasty, incorrect decisions. There is a lot both issuers and audit firms need to understand in terms of the requirements of the mandate, what options are available for them, how to choose the best option that suits them. I would recommend that NOW is the time to start planning so that in couple of months you zero in what works best for your firm.

ESMA mandate Question

The ESEF mandate is to report Annual Financial Report (AFR) in XBRL. Is XBRL and Inline XBRL one and the same?

Anu:

Well, I must say a lot of people think XBRL and iXBRL is one and the same, because they sound so similar but they are very different.

XBRL is an XML file format which is a super machine friendly readable but not human readable. However iXBRL is the next-gen of XBRL. iXBRL is an XHTML file format which has XBRL tags embedded in the HTML document. This makes the document machine and human readable.

ESMA mandate Question

Since iXBRL is the next-gen of XBRL, do all XBRL tools and software handle iXBRL?

Anu:

The fact is that, not all XBRL software can handle iXBRL. iXBRL requires the output format to mirror the look and feel of the annual report and therefore it is important that the tool/software should be able to handle the style and layout of the annual report. Remember, iXBRL is inline XBRL, the tags are literally embedded in line itself, i.e. right within the regular human readable document. Such output file format should also follow the Inline XBRL 1.1 specification which clearly defines the rules of how an iXBRL document needs to be created and what type of attributes are allowed, disallowed etc.

ESMA mandate Question

What type of tools and software are available in the market? Is one required to purchase a tool and learn iXBRL or can I outsource?

Anu:

There are many tools and software available in the market. There are some desktop solutions; some cloud-solutions for specifically for iXBRL tagging, there are also disclosure management solutions where you can handle both AFR preparation as well and iXBRL. There are even some tools that are based on excel templates, where numbers can be keyed in and an iXBRL document can get generated, though these are not true iXBRL documents.

If you want to do the iXBRL in-house you can purchase a tool and do the tagging on your own – this will need some training and practice by the way, or you can have a software service provider do the tagging. There are also pure outsourced conversion providers as well who can convert your AFR to iXBRL. However, even if you outsource the creation of your iXBRL, do learn enough to review the XBRL tagging. Remember, it is your document and you are the one responsible for what you are submitting.

ESMA mandate Question

What would be your recommendation- tools, software or outsourced services? Any specific things to watch out for?

Anu:

iXBRL requires the tagging to be done on the face of the document so that the XBRL  tag is embedded on the number/disclosure you are tagging. So I would say a big NO to any excel based template tool and would always suggest looking for a tool where the tagging can be done on the face of the document, and retain the formatting of your document. Additionally any tool or service you pick should support the latest ESEF taxonomy which has the 23 EU language labels, and it should also support extensions and anchoring.

So I would suggest, look for ONE solution which has both formatting and tagging capabilities. I would also highly recommend that issuers use this opportunity not just to focus on iXBRL but take a look at their overall disclosure management process and see if it can gain efficiencies there. There are tools that allow efficient preparation of AFRs and other disclosures,  and which also integrate iXBRL, all in one solution. Drafts of outputs can be created in an easier way, all users can be working on one single platform and all changes reflect instantly to all output files such as word, pdf, as well as the iXBRL output. It is a much more streamlined way of managing your internal processes. If you already have a streamlined AFR process and do not want to disturb that, I would suggest look for a cloud based iXBRL solution. Cloud based solutions are the most popular in other countries as well, so that even if service providers are working on your document, you have complete visibility and control and can see what is happening with your document at all times. Coordinating the review and finalization of your iXBRL document also becomes easier. And changes that regulators bring in from time to time can also be managed more easily and quickly by the software provider in case of cloud based solutions.

ESMA mandate Question

Well, this was a lot more than I anticipated. Are there any reading materials on the new mandate?

Anu:

It’s important you work with a partner or a consultant who is an expert in this area. So make sure that you choose partner or a consultant who exactly knows what is needed.

There are all lot of educational resources available; we have some interesting blogs. ESMA, XBRL International (XII)  and XBRL EU and the member country XBRL jurisdictions are putting in lot of efforts in spreading the word of the mandate including webinars. There are many conferences being organized by XBRL EU and the member country XBRL jurisdictions to spread the word of ESEF reporting. Stay tuned to the events schedule on the XII site and also XBRL EU site so that you can attend the conferences organized in your country and learn more. If you have any questions on the mandate, feel free to write to me at anuradha.rk@irisbusiness.com.

We have recently published an e-book on ‘ESMA ESEF iXBRL mandate and what you should know about it’, which covers details on what the mandate is and how to get ready for the ESEF reporting. Feel free to download this e-book to get started with your ESEF compliance reporting.