Things to Watch Out For in 2021 ESEF iXBRL Documents

The first ESEF 2021 filings season has started and issuers have successfully submitted the iXBRL documents with the regulators. The next month is going to be very crucial for all issuers across the EU region and the UK with respect to ESEF filings. Hence, it is important to understand the compliance process well in time to have a smooth filing experience. Here are some quick tips and tricks which would help issuers as well as auditors in their ESEF compliance process.

ESEF Compliance Process

Companies should look into the arithmetical accuracy of their financial statements. Any inconsistencies in the numbers will result in an error called ‘Inconsistent duplicates’ – which is serious enough to block an ESEF XBRL filing.

For instance, an ‘Inconsistent duplicate’ error will occur if the value tagged ‘ifrs-full_ProfitLossBeforeTax’ is different in the Profit & Loss Statement from that in the Cash Flow Statement. The key is to spot such errors well in advance using the appropriate tools to get ESEF XBRL documents ready faster.

1. xHTML Should Mirror Image Your PDF Report

With the ESEF reporting, the PDF submission will no longer be considered a valid official document.  Hence, it is important for every issuer to understand the importance of digital reporting (iXBRL) going forward. The first step in the ESEF compliance process is to make sure the xHTML document is exactly the replica of the company’s PDF report. If there is any mismatch in the reporting it should be highlighted to the software vendors who are doing the conversion process.

Below is an example of a report having a mismatch in PDF and xHTML

Below is an example of a report with no mismatch in PDF and xHTML

2. Review Tagging

Once the PDF report is converted into iXBRL the next step is to perform tagging on the document and review the tagging details. The review process can be divided into 2 parts

2.1 Check the values reported

Every issuer is required to verify the tagging done for 5 primary statements in detail. The XBRL Tag used, unit assigned, a scale defined, and date of the financial period are properly defined in the iXBRL documents. Below is an example with tagging details

2.2  Check the company taxonomy

Along with the tagged elements issuers are also required to review the company taxonomy created for each financial year. As per the ESEF mandate, every company is required to create its own company taxonomy for each financial year. In the company taxonomy, all the aspects need to be verified (presentation, calculation, definition, extension concepts, and anchoring relationships) along with mandatory tags information.

3. ESEF File Naming Convention

ESMA encourages issuers to adopt a naming convention that follows the {base}-{date}-{lang}.xhtml or {base}-{date}-{lang}.html format.

• • The {base} component of the filename should indicate the Legal Entity Identifier of the issuer or the issuer’s name (or its abbreviation); it should be no more than 20 characters long.
  • The {date} component of the filename should indicate the end date of the reporting period of reference. The {date} component should follow the YYYY-MM-DD format.
• • The {lang} component of the filename should indicate the language of the report contained within the report package.The {lang} component should follow ISO 639-1 format (two-letter code).

The following example shows how the naming convention should be used for standalone HTML/xHTML documents:

• • The Legal Entity Identifier should have 12 digit characters: ‘528810H35S83NE4UQ833’
  • The date should be in the YYYY-MM-DD format — ‘2021-06-03’
  • Language should be in the ISO 639-1 format (two-letter code). For instance, an English report will be represented by the letters ‘en’ format.

Here’s how the naming appears:

“528810H35S83NE4UQ833-2021-06-30-en.html”    

OR

“528810H35S83NE4UQ833-2021-06-30-en.xhtml”

4. Validation Rules

Check if the software supports the latest validation rules defined in ESEF Reporting Manual and Conformance Suite

Ensure all the validation errors are corrected and there are no errors in the document. Issuers should make sure there are no duplicates or calculation inconsistencies in the iXBRL documents. Following are the different types of validation results that need to be verified in the iXBRL document.

1. XBRL (eg: duplicates)
2. Xhtml (eg: external hyperlinks not allowed)
3. Mandatory tags
4. ESEF reporting manual (eg: zip file naming convention)

5. Audit Of ESEF Documents

Auditors play a very key role in auditing the ESEF documents. As auditing of ESEF reports is been mandated in the EU region now the responsibility is more on auditors and audit firms in ESEF compliance. In the UK region audit of ESEF reports is still not mandated. Few things that auditors should definitely watch out for while auditing iXBRL reports.

1. Planning of ESEF audit with clients
2. Understanding the process for preparing the financial statements in ESEF and related controls
3. Procedures and scope of work for iXBRL and XHTML reporting
4. Reporting on ESEF compliance and other engagement-related activities.

Roles and responsibilities of auditors:

1. Auditors are not expected to have complete knowledge of technical things in ESEF reporting
2. Ideally, they are required to base an opinion on the digital reporting of the annual report with respect to (Tagging, company taxonomy, extensions, anchoring)
3. Formatting, text overlapping, and font issues are not the things that auditors should vouch for in ESEF reports.
4. Auditors are not only required to audit iXBRL documents but also xHTML (without tagging).
5. Auditors should provide the audit report to the end client well in advance so as to integrate it into the final iXBRL/xHTML document
6. Ideally, it would be good if auditors can provide the audit report prior to 2-3 days before the publication of an annual report on the website.

6. Test Filing With The Regulator

It is recommended to all the issuers to do test filing with the regulator. Check if the national regulator has the testing environment to do test submission of ESEF reports before the actual submission. Issuers should leverage this option and conduct test filing accordingly to ensure there are no errors in the ESEF documents. 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.