Decades ago, possibly even a century ago, oil was the most precious commodity for an economy. That’s changed quite significantly now. The present economy is driven by data. It is explored, extracted, stored, and processed for different purposes. From evaluating the investment potential of a company to predicting any market’s trajectory, data is the ultimate game-changer. And so it’s no wonder that data has become the new oil.
Just like oil, the quality of the data is important. But unlike in the case of oil, you have more control over the quality of the data you generate or extract. Thanks to standards like eXtensible Business Reporting Language, the raw financial data can be obtained from companies in a uniform, standard format. This allows regulators more control in not just the process of extracting data but also ensures that the quality of the data remains top-notch and uncompromised.
How is ESMA ensuring transparency in financial data reporting?
Transparency is the very essence of ESMA’s efforts to consolidate financial data from EU issuers. Data has to be trustworthy, reliable and legitimate otherwise it will not only be futile but also bear catastrophic consequences for anyone using it. Keeping this in mind, ESMA issued the transparency directive that is being implemented by all EU member states and followed across Europe.
The directive unequivocally states that it aims at ‘harmonization of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market’
As part of this directive, ESMA expects the following information to be published by you as a qualifying entity:
Yearly and half-yearly financial reports
Major changes in the holding of voting rights
Ad hoc inside information that could affect the price of securities
When it comes to your financial reports specifically, the harmonization will be done using a single electronic reporting format, iXBRL. If you are a qualifying entity, you may already be aware of ESMA’s 2020 iXBRL mandate. In case you want to know more about the mandate, just follow this link.
Your due diligence as a qualifying entity
A lot of gears have been set in motion since ESMA’s iXBRL mandate came into effect this year. Trusted iXBRL vendors like IRIS have received crucial instructions at the ‘ESMA meet the market’ event in February. We’ve also begun providing training to companies to help them transition to iXBRL smoothly.
For you as a qualifying entity, meeting the technical standards set by ESMA is further important because your company’s financial information will become part of one of the richest sources of data in the world. Consequently, it will attract potential investors and also promote cross-border investment. To make this possible, the European Commission has undertaken a pilot project to implement a single point of access, the European Financial Transparency Gateway (EFTG) web portal.
The EFTG is a dedicated platform for sharing data instead of exchanging it, offering full traceability and ownership management of both submitted and consumed financial data. What this invariably means is that you as a filer are a part of the process to maintain the quality of your data. This is also why iXBRL has been the standard mandated by ESMA for financial reports.
How iXBRL plays an important role
iXBRL may come with a learning curve, but it offers comparability of data, reduces the scope for human error, and most importantly, it maintains the quality of financial data. It may not be easy when you prepare your report in iXBRL for the first time, but once you master the technical aspects of this standard, your annual report will have greater value than you can imagine.
For these very reasons, recommend that you familiarize yourself with certain aspects of iXBRL that are directly related to ESMA’s iXBRL mandate. You can start by exploring these articles:
Validating your iXBRL document for ESEF compliance– Know the specifications and guidelines laid down by ESMA that your document needs to meet.
Find out how to avoid validation errors to make your iXBRL document fully ESEF compliant.
And keep in mind that you will have to deal with warnings while validating your ESEF iXBRL document.
Once you understand these technical aspects, you will know ESMA’s expectations from your report and that will help you to create a plan of action. Additionally, clear your doubts and stay alert about mandate requirements. What if there is a ‘hidden’ requirement of the ESEF mandate that you may have missed? Or even something as simple but as crucial as upgrades in the ESMA-ESEF taxonomy. Your due diligence will play a massive role in the quality of your iXBRL report, so make sure you’re on top of all news and information related to ESMA’s iXBRL mandate.
Don’t be daunted by the task that lays ahead of you. You’re part of an important process but you’re not alone. You can always talk to our experts if you need any sort of clarity or direction about your iXBRL report. Nevertheless, make sure that you choose a trusted iXBRL solution provider because a good iXBRL product will not just maintain the quality of the data in your financial report, it will also do it with the least amount of inconvenience to you.
