In my last blog, I talked about five things issuers should be doing over the summer to prepare for their first ESEF Inline XBRL (iXBRL) filing. A big part of that preparation depends on choosing a vendor who will provide the XBRL tagging service. I mentioned a few things to look for in a vendor, but today I wanted to focus on things to look out for — common things I’m seeing issuers misunderstand about vendors, as well as things I’m seeing vendors misrepresent about what they can offer.
- Trusting AI alone to ensure XBRL quality.
The technology behind leading products for XBRL tagging is incredible. But beware vendors promising that AI can fully automate the entire tagging process, with little or no human involvement. AI-driven products can do a decent job tagging your face financials. But even if AI gets your face financials 80% right, is that good enough? If you expect 100% correctness from your financials, why wouldn’t you expect the same for your XBRL? Moreover, almost every company’s financials are more complex than they realize — particularly as they get beyond face financials and into the notes — and AI simply cannot handle these complexities on its own. So what happens in future years, when the ESEF requirements move beyond tagging face financials? If you go with the simplistic, AI-only product, you’ll be starting the vendor selection and implementation process all over again.
That’s why you need to make sure there is proven human expertise behind the technology. Choosing the correct XBRL tag is often more of an art than a straightforward science, and you want to work with people who have honed this art through real-world experience.
- Not seeking out proven XBRL experience.
This is Year 1 for the ESEF mandate, so there are some new vendors who are playing off their lack of experience with lines like, “This is Year 1 for everyone.” The truth is that XBRL is not new. Leading vendors have been working with companies filing IFRS financials under the US SEC XBRL requirements for three years now. These experts have also been tagging using the US GAAP XBRL taxonomy for over 10 years.
Issuers should be seeking out this proven experience — looking for vendors that know the IFRS Taxonomy, have done several iXBRL filings and understand the emerging best practices around tagging that are just as relevant for filing under ESEF. This minimizes the risk of embarrassing errors and lost-in-translation issues, so you can be confident that your financial reports tell the right story — right from Year 1.
- Not learning the L in XBRL.
The “L” in XBRL stands for language. But learning XBRL isn’t a matter of straightforward translations — there’s a lot more judgment in the process. Issuers don’t have to become XBRL experts — that’s why you’re bringing in the expertise of a vendor. But at the end of the day, it’s your company that’s responsible for the file you’re submitting. You should have a comfortable understanding of what you’re submitting, shouldn’t you?
Many vendors’ relationships with issuers are pretty one-sided: The issuer gives needed information to the vendor; the vendor does the tagging; end of story. But the more experienced vendors take the time to share their knowledge, helping you gain a basic understanding of XBRL tagging and answering all your questions, so you can feel comfortable and confident that your XBRL tells the right story.
- Not asking about the review process.
Almost every company thinks about the front end of the XBRL tagging process: What do we need to provide the vendor, so they can create the iXBRL file? But a lot of companies overlook the back end — how the vendor will facilitate the issuer’s review of the XBRL tagging. Because as I mentioned in #3 above, every company will need to make time for a thorough review of the XBRL to ensure 100% correctness. This is one part of the process where things can slow down and get painful — if the vendor isn’t able to make the review process work with how your team works best.
For example, what type of file will the vendor provide for your review? Ideally, the vendor should offer multiple outputs, so you can choose. At the least, the vendor should not limit you to reviewing the actual iXBRL file. Reviewing in iXBRL format is tedious, time-consuming and increases the risk of errors being overlooked.
- Believing you have to change your Annual Report creation process in Year 1.
Don’t let a vendor talk you into believing you must completely revamp your internal workflows for producing your Annual Report in Year 1. If your company produces a PDF for your annual report today, you shouldn’t have to change the internal process of producing that report in Year 1 of the ESEF requirements. Leading vendors have built offerings that allow you to keep your internal workflows for preparing your financials exactly as they are today.
As an addendum to that point, make sure your vendor is prepared to help you meet ESEF requirements in Year 2, 3, etc. (i.e., the coming requirement for text block tagging and possible requirement of detailed tagging in the notes). Leading vendors have the depth of expertise and technological capabilities to evolve with you as your reporting requirements change and grow more complex — while still working to allow your team to work the way that’s best for you.
- Believing the lowest price — or highest price — delivers the best value.
There are vendors at both ends of the spectrum: impressively low-priced, as well as shockingly high-priced. I would caution issuers against believing that a budget offering can give you more for your money — and I would also caution issuers against assuming that paying a higher price will give you the “best” you can buy.
As I mentioned in #1 on this list, some low-priced products lean too heavily on AI and may not ultimately meet your accuracy and quality standards. (You wouldn’t settle for 80% accuracy in your financials, right?). But as I mentioned in #5, you don’t need a solution that completely transforms your internal processes and requires a full-on enterprise software installation, either. The bottom line is: Make sure you’re getting what you need — not more, and not less.
- Not being prepared for things to go wrong.
I said before that companies’ financials are always more complex than they realize. And here’s the thing: Sometimes, things go wrong — it might be a technical issue, an issue with rendering, an issue with a tag, or something completely unexpected. If you hit a bump in the road, an inexperienced vendor may not know what to do — how to fix an error, how to make a file “fileable,” etc.
Going back to the point I made in #2, experienced vendors have been doing XBRL tagging and filing iXBRL for a few years now under the US GAAP and the IFRS taxonomies. They’ve seen things go wrong, and they’ve figured out how to fix them. So they won’t be surprised if an unexpected issue comes up during your tagging and filing process — and they’ll be able to quickly resolve the situation.
- Focusing on xHTML (and overlooking Inline XBRL).
The two major components of the ESEF requirements are the Inline XBRL tagging and filing in xHTML format. But some vendors are focusing on the xHTML part — and downplaying the iXBRL part. The reality is that the transformation from a traditional PDF format to xHTML format is a relatively straightforward IT process. But the transformation from PDF to iXBRL requires real, human expertise. To put it another way, a pretty xHTML annual report does not guarantee accurate iXBRL. And iXBRL is arguably more important than xHTML, because that’s the data that will be readily consumed by regulators and analysts.
Listing all these common mistakes may make it seem like the vendor selection process is painful and difficult to get right. But it doesn’t have to be. I can break it all down into three basic points: First, you should expect a vendor that can help you create an ESEF-compliant financial statement that is 100% right — why would you settle for any less? Second, getting to that 100% level will require more than technology — you want human experts that have done this before. Finally, find a vendor that can deliver exactly what you need today — not any more, and not any less — but is able to provide more as your needs change and reporting requirements grow more complex in future years.
This blog series features Bartek Czajka, Director of XBRL Consulting Services at Toppan Merrill. Bartek is one of the foremost experts on XBRL, having created the majority of updates and additions to the IFRS Taxonomy between the years of 2010-2017 during his tenure as Senior Technical Manager at the IASB, the organisation that issues the IFRS Standards. When ESMA was tasked with developing the European Single Electronic Format (ESEF), Bartek directly helped ESMA define the shape and form of the XBRL taxonomy to be used. He also participated in the field test organised by ESMA with 25 European issuers to assess the cost and benefit of using XBRL for ESEF. There is no one more qualified to help our clients understand, successfully implement, produce and confidently move forward with XBRL.