The European Securities and Markets Authority (ESMA) recently announced its new ESEF iXBRL mandate which came into effect on January 1, 2020. The mandate is applicable to all public companies in the European Union (EU) that have securities or bonds listed on capital markets. As per the mandate, Issuers are now required to prepare their Annual Financial Reports (AFR) based on IFRS standards in Inline XBRL (iXBRL).
To those who are unfamiliar with the term, in simple words, iXBRL is an upgraded version of XBRL and enables a document to be read both by humans and machines. The benefits of iXBRL are immense and you can find out more about it here. The iXBRL report you file with your regulator is your official audited annual report which will be used by the regulator as well as stakeholders. So you want to ensure that the document not only looks good, but is also tagged accurately, and meets the specifications and guidelines laid down by ESMA.
What does this mean for your document?
Your iXBRL document has to meet the overall iXBRL specification.
The iXBRL 1.1 specifications are defined and managed by XBRL International, Inc. (XII), the organization responsible for developing and maintaining the XBRL and iXBRL standards. The specifications defined by XII are independent of the specifications laid down by a regulator. However, any regulator that adopts XBRL or iXBRL as a standard requires that the documents submitted to them should meet the requirements of the XII specification.
Meeting the iXBRL specification is not a daunting task. The iXBRL standard has been around for a while and has been adopted by several countries (including the UK back in 2012). To meet iXBRL specifications, the easiest way is to choose a reliable and trustworthy software and/or service provider whose solutions have been tried, tested, and used in markets where the iXBRL mandate has been in existence for a while.
Your iXBRL document has to comply with ESMA’s guidelines and validations.
In addition to meeting the requirements of the iXBRL 1.1 specifications which are applicable to any iXBRL file (irrespective of the regulator); ESMA has also defined its own additional requirements that you need to meet. ESMA’s requirements can be categorized as guidelines and validations. Any software or service that you select needs to ensure that these guidelines and ESMA-specific validations are also included in their solution.
ESMA guidelines
ESMA has prepared an ESEF reporting manual which provides guidance to Issuers in preparing their AFR in iXBRL as well as to the Software firms to ensure technical validity of the submission.
Below are a few examples of the Guidance issued by ESMA:
Example 1: Guidance 1.1.1 Language of labels [last updated: December 2017]
The labels of the elements used for marking up the annual financial report including the issuers’ extension taxonomy elements should be in the same language in which the annual financial report is prepared. Issuers are not required to provide labels in other languages. However, ESMA encourages issuers to provide, for the extension taxonomy elements, labels in a language customary in the sphere of international finance, as it would be highly beneficial for users.
What this means
ESMA wants you to keep the labels in the same language in which you have prepared the AFR. If you prepare your AFR in French then the labels of the XBRL tags used should also be in French. However, if you have created your own XBRL extension tag, then ESMA would also like you to provide the label in a language that is most commonly used in the sphere of international finance. In such a case, you can prepare the custom label in both French and English.
Example 2: Guidance 1.2.2 Use of elements available in the IFRS Taxonomy that were not yet included in the ESEF taxonomy [last updated: July 2019]
The IFRS Foundation regularly updates the IFRS Taxonomy. If an issuer determines that the IFRS Taxonomy includes an element that corresponds to a disclosure of the issuer in its IFRS financial statements and that this element is not yet included in the ESEF taxonomy, then the issuers should define an extension taxonomy element whose name and label corresponds to name and label of the element in the IFRS Taxonomy.
What this means
ESMA has used the IFRS taxonomy as a base while preparing the ESEF taxonomy. However, since the IFRS taxonomy gets updated regularly, there may be elements in the IFRS taxonomy that are not yet a part of the ESEF taxonomy. Hence if you have to tag a fact in your annual report, and don’t find an appropriate element in the ESEF taxonomy, check the IFRS taxonomy to see if you find the element you need. You can then use that IFRS element in your company taxonomy. You should also use the same label.
Example 3: Guidance 3.2.1 Naming conventions for extension taxonomy elements [last updated: July 2019]
Extension taxonomy element names should represent the standard label of this element in the Label CamelCase Concatenation [LC3] convention unless it violates XML element naming rules. If multiple standard labels exist for extension taxonomy element (i.e. in various languages), then any of those labels may be used as the basis for constructing the extension taxonomy element name. This is to follow the conventions applied in the ESEF taxonomy and the underlying IFRS Taxonomy.
ESMA recommends software firms to include in their tools rules ensuring: Extension taxonomy element name SHOULD follow the LC3 convention. In case of violation, the following messages are recommended to be Violation: “extensionTaxonomyElementNameDoesNotFollowLc3Convention”
What this means
Let’s take an example to understand this better. In case an issuer has created their own tag like ProfitLossFromSaleOfVehicles, then the label that you should be given as per the LC3 convention is Profit (Loss) from Sale of Vehicles. If you were to give any of the following labels, then the software you use will show an error message.
- Profit / Loss from Sale of Vehicles (/ is not allowed in the label)
- Profit (Loss) From Sale Of Vehicles (From, Of, and other prepositions should not start with Capital letters)
- Profit or Loss from Sale of Vehicles (the word ‘or’, which is not part of the tag, has been added to the label)
These are a few examples to make you comfortable with some of the guidelines issued by ESMA. The purpose of these guidelines is to help Issuers by addressing the areas which they need to keep in mind while tagging their AFR. Likewise, it provides instructions and suggestions to Software providers which they need to take into account while creating and generating an iXBRL document as per the ESMA Mandate.
Apart from guidelines, ESMA has also provided a list of validation rules, and we will take a closer look at that in our next article. We hope this has been useful. When selecting a software or service provider for your ESEF reporting, do check how the output will meet the iXBRL specifications, ESMA guidelines, and ESMA validations.
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