Starting in 2022, European issuers that are subject to the European Single Electronic Format (ESEF) need to “block tag” the notes to their consolidated financial statements along with tagging the face financial. The issuers and software vendors are facing difficulties due to this new requirement. The manner and timing of these obstacles’ resolution will affect the auditor’s job.
Practical issues are outlined in this guidance for auditors conducting ESEF assurance engagements. It highlights phase 1 & phase 2 of mandate considerations and lists key touchpoints for each stage of the engagement.
Introduction
With the advent of the digital age, an entirely new phase of financial reporting has arrived with the efficient use and ease of interactive forms for information. However, as businesses transition to using iXBRL (Inline eXtensible Business Reporting Language) for financial reporting, several issues have come up, particularly regarding tagging during audits. In this blog post, we’ll look at a few different kinds of digital challenges to ensure a smooth audit process and maintain report accuracy.
Scaling issues
Issuers must select reported quantities and provide currency, scale, and accurate information in electronic reports. Certain issuers select a scale that is inconsistent with the reported facts.
Extract from a Company’s Consolidated Income Statement
The line item ‘Revenue from the sale of own real estate is reported with a value of Euro 10,478 (Thousands) in the annual report.
In the digital ESEF report
- What went wrong: The value is reported with a scale of ‘Actuals’
- What’s correct: The value should be reported with a scale of ‘Thousands’
The impact
Any person using the digital data, whether an investor, analyst or even the regulator would interpret the ‘Revenue from sale of own real estate’ as Euro 10,478 instead of Euro 10,478,000.
Sign issues
Negative signs in financial statements do not always indicate a negative value for the line item. They are commonly used to indicate that a value will be deducted to generate the subtotal in the statement.
Although information can be presented in multiple ways, viewers must understand the context of the data.
Extract from a Company’s Consolidated Income Statement
EUROS in Millions
What went wrong?
| Disclosure Item on Financial Statement | Value as Reported in Annual Report | Value Reported in XBRL | Calculation Weight | Calculated Value in XBRL (A) |
| NET PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS | 5,134 | 5,134 | 1 | 5,134 |
| NET PROFIT/(LOSS) FOR THE YEAR FROM DISCONTINUED OPERATIONS (NET OF TAXES) | -73 | -73 | -1 | 73 |
| Non-controlling interests | -722 | -722 | -1 | 722 |
| NET PROFIT FOR THE PERIOD ATTRIBUTABLE TO THE PARENT | 4,337 | 5,929 |
What’s correct
| Disclosure Item on Financial Statement | Value as Reported in Annual Report | Value Reported in XBRL | Calculation Weight | Calculated Value in XBRL (B) |
| NET PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS | 5,134 | 5,134 | 1 | 5,134 |
| NET PROFIT/(LOSS) FOR THE YEAR FROM DISCONTINUED OPERATIONS (NET OF TAXES) | -73 | 73 | -1 | -73 |
| Non-controlling interests | -722 | 722 | -1 | -722 |
| NET PROFIT FOR THE PERIOD ATTRIBUTABLE TO THE PARENT | 4,337 | 4,339 |
The Impact
| Details | Value |
| Total XBRL Calculated Value of Table 1 (A) | 5,929 |
| Total XBRL Calculated Value of Table 2 (B) | 4,339 |
| Difference | 1,590 |
- Any person using the digital data, whether an investor, analyst or even the regulator would interpret that the Net Profit For The Period Attributable to the Parent is overstated by EURO 1, 590 million.
- Rounding off: The net profit as per the annual report is Euro 4,337 million, however, XBRL calculation shows a total of Euro 4,339 million, thereby showing a Euro 2 million difference.
Missing calculations
The ESEF standards require issuers to describe the calculations used in their financial statements. Issuers must disclose the “rollup” calculation between line items in their financial statements. This calculation explains how a total or subtotal is calculated.
Extract from a Company’s Consolidated Income Statement
(Amount in Euro millions)
ESEF reporting manual guideline 3.4 (Extension taxonomy link bases) requires ‘calculation relationships need to build where there are summation ships which presents a way to specify the calculating relationships between XBRL Concepts and a method to verify if the information in an XBRL report is in line with those connections.
- The summation relationship has not been defined for the above disclosure.
- Due to this, the Company has made a mistake in its annual report. Their loss as per the published annual report is Euro 2,234 instead of Euro 2,210 (Euro 2,225 less Euro 15).
Tick mark Calculation link base should have been prepared for this disclosure.
Impact
- The Company has overstated its losses by Euro 24 million.
- Due to the absence of an XBRL calculation relationship, the Company could not identify reporting mistakes in its annual report ahead of publication.
Improperly Anchored Extensions
Primary financial statements often include entity-specific line items (referred to as “extensions”) where applicable.
When this occurs, the issuer is expected by the electronic format to provide information about how this line item relates to standard or common practice line items known as anchoring.
It may appear that the financial statements lack information on certain key components required for a precise entity assessment in situations when there is a heavy reliance on incorrectly anchored extensions.
Extract from a Company’s Consolidated Cashflow Statement
An anchoring relation should have been built for this reporting disclosure.
The anchoring relationship should be built as follows where the company-specific tag ‘abc_ProceedsAcquisitionOfTreasuryShares’ is anchored as a narrower anchoring along with the broader anchor.
Impact
In any electronic filer issuer would require anchoring the extended elements with the narrower and wider reference taxonomy elements so that investors or analysts can link the custom element with taxonomy elements appropriately and correctly.
Conclusion
It is critical to address tagging anomalies during audits as companies proceed with their iXBRL adoption. Issues can be fixed with a smart mix of proactive steps, education, and improved technology adoption. Auditors can help create a financial reporting ecosystem that is more dependable and efficient by staying ahead of these obstacles.
How we can help Auditors
IRIS xAudit® is our new, sophisticated XBRL International certified software to audit and review iXBRL documents prepared to comply with the ESMA’s European Single Electronic Format mandate. IRIS xAudit® is collaborative software, which means it allows multiple people to work on a project simultaneously.
How we can help listed issuers
IRIS CARBON® is a SaaS solution that helps companies with authoring comprehensive financial and non-financial reports and converting them into highly interactive and machine-readable XBRL | iXBRL formats using digital reporting frameworks or taxonomies. The authoring and XBRL conversion process using IRIS CARBON® is supported by highly experienced support professionals who are available 24×7.
Why Us? Let’s collaborate to get your compliance right !
As the distinguished specialist at IRIS CARBON®, Neha leads the way in advancing XBRL reporting. With 13 years of domain expertise, she navigates reporting mandates across the US, UK, EU, Israel, and Nigeria. Neha streamlines XBRL integration for European businesses, raising reporting standards. Her expertise extends to the digital transformation of ESG data and authoring reports using the Disclosure Management platform. Neha’s blogs offer practical insights for mastering XBRL reporting and financial disclosure, recognized for turning complex concepts into strategic assets. She guides industry leaders, ensuring each initiative is a roadmap for successful ESG integration and impactful financial reporting.
