Companies are well underway in preparing their financials for Year 1 of ESMA’s ESEF iXBRL requirement. And while it’s no doubt an added challenge to navigate these new requirements for the first time, companies have the advantage of learning from the experiences of the roughly 30% of issuers that filed in 2021. Here’s a few points from my perspective that stood out when working with those “ESEF pioneers.”
ESEF impacts everyone
When I think of ESEF, the first thing that comes to mind is just how many different stakeholders are involved in the process. For preparers, the whole financial reporting team is directly impacted by process changes and added time for review of the ESEF information. But it’s not just preparers.
- Auditors must review the ESEF filings — and some are doing this for the first time.
- Regulators are dealing with the technical and logistical challenges of receiving filings in a completely different way. In other words, everyone involved is going through this change, feeling some of the same pressures and pains.
- Designers, too, must manage the conversion from PDF to XHTML, which can affect everything from how tables appear to page numbering to file size limitations as imposed by each jurisdiction.
Forcing a closer look at quality
Quality is the other big change — not only the quality of the XBRL fillings, but the quality of the financial statements themselves. XBRL is forcing companies to re-think their financials and look more closely at things they haven’t touched in ages. We’ve seen preparers making big changes to their financials, and we’ve seen deep discussions on the quality of the financials themselves because of how the XBRL makes it easy to catch errors, inaccuracies and inconsistencies in the financial information. This focus on quality is more than worth it. Once it’s filed, XBRL data will live publicly in perpetuity — and you don’t want incorrect data living forever. It’s worth saying again that this is why it’s so important to make sure you have experienced XBRL professionals on your side — people that understand the ESEF taxonomy and are ready to spend the time necessary with you to walk you through the final tagging decisions.
Don’t pass up early testing and validation
Related to quality, the next big point I wanted to make is about testing and validation. Many of the exchanges have a pilot program for preparers to test their XBRL or their filing as a whole. My urgent advice is this: If testing and validation is available, make sure you use it. And if your exchange doesn’t have a pilot program, I still suggest seeking out one of the independent validation tools that are available in the market now. This is the simplest, best thing you can do to make sure your filing fulfills the ESEF requirement — before the data is released to the market. At a basic level, as you convert your financials from PDF to XHTML, you might be surprised by the errors and issues you find. These are generally easy to fix, but better to encounter them early on in the process than at the last minute — or after you’ve already filed.
Involve your auditor as early as possible
I’m hearing from many preparers who are surprised by the extended time required for the audit process. Those days and even weeks are condensing the time available to make revisions — and in some cases even delaying filings because the auditors got the information from issuers too late.
My advice is to involve your auditor as early as possible. Discuss everything with your auditor: the process, the planning — everything — and include your auditor in your workflow, particularly in respect to timing. Know that the audit questions may go deep and require time to check and confirm information around the tagging. Again, the key is that you start the audit process as early as possible. The good news is that about 80% of the work can be done and pre-agreed/pre-approved in a pre-audit, based on last year’s financials or half-year financials. This makes for much less work during the very busy final months before filing.
Make sure everyone knows their role and has plenty of time
It is critical that all parties involved know their role and the timing of their responsibilities. Remember, you can complete the initial mapping to remove much of the last-minute burden. But you still need to leave plenty of time for that final push. There will inevitably be last-minute changes to the financials — and the auditor is likely to come back with questions and changes as well. You don’t want to be time-crunched. Detailed planning will give you peace of mind and ensure no errors slip through.
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. We can think of no one more qualified to help our clients understand, successfully implement, produce and confidently move forward with XBRL.