Now that the EU Parliament has officially announced it will allow member states the option to postpone the ESEF iXBRL requirements by one year, the question for most issuers is: What now? What should you be doing today and over the coming months? The simple answer is that this is a valuable second chance to get ahead of the game. We’re going to dive into the details of how issuers can make things easier — reduce the hassle and save both time and cost — by being proactive in preparing for the Year 1 ESEF requirements to be filed in early 2022.
What the EU Announcement Means
In short, the late-December announcement allows each EU member state to delay the ESEF iXBRL Year 1 requirements until 2022. The Transparency Directive leaves the decision up to each member state, with guidance that member states make an official announcement on their decision to delay by the end of February 2021. Many member states have already said they will delay to 2022, and Toppan Merrill is keeping an updated list of the statements released by each member state.
We expect most member states to delay. The exception are those states where local laws have already been changed to align with the ESEF iXBRL requirement (i.e., Germany may not delay because the ESEF requirement is now essentially “baked into” German law).
Proactive Companies Are Filing iXBRL in 2021
Toppan Merrill is working with many issuers who are still planning to file iXBRL in 2021, even if the mandate is postponed in their country. Why? Because XBRL is a powerful way to get your financial data noticed and analyzed. Investors and analysts are eager for easily consumable XBRL data, so being one of the few EU issuers to file iXBRL in 2021 is likely to be for companies to generate positive investor and analyst attention. These EU iXBRL pioneers will likely get press attention and market hype, and with the opportunity to turn it into a very positive story.
For Most: A Second Chance to Implement the ESEF iXBRL Mandate Into Their Year-End Workflow
Most companies are more than happy to take advantage of the one-year postponement on the ESEF iXBRL mandate. But rather than procrastinate until this time next year, the postponement is an ideal opportunity to use the time wisely. The postponement affords issuers a second chance to start the process off early and make the transition much smoother. Beginning preparations after you file your 2020 financials — when workload eases and most issuers are a little less busy — will make every aspect of ESEF iXBRL compliance much easier than if you wait until 2022 filing deadlines begin looming.
Moreover, remember that the ESEF iXBRL mandate is not a one-time requirement. This is the “new normal” (to use the biggest buzzword of 2020). So, while it may be tempting to wait and tack the additional workflows on at the end of your filing process, we strongly suggest issuers look to integrate these new workflows now into their year-end reporting process and preparation schedule.
What Issuers Should Be Doing Now
The good news is that there is already plenty of guidance on how to prepare early and get ahead of the game on the Year 1 ESEF requirements. What was true a year ago remains true today as most EU issuers consider their first filings in early 2022. Here are some key resources that can help:
- 5 Things Issuers Can Start Doing Now - Last summer, we covered five essential things all issuers can start doing to be prepared.
- 8 Tips for Vendor Selection - A big part of preparation is selecting a vendor partner with both the expertise and the technology to help you shift to iXBRL.
- How to Build a Future-Ready Plan for Year 1 & Beyond - Clear guidance to make sure the work you do in Year 1 sets you up for success in Year 2 and beyond.
- Why It All Matters - A thorough primer on how XBRL can help your business — if you get it right.
- An ESEF Success Story - Hear one company’s journey of early preparation and successful iXBRL test filing.
To tie it all together, Toppan Merrill created a simple, visual guide to compliance planning leading up to the 2022 filing deadline:
The Issuer-Auditor-Vendor Partnership Is Critical
Part of your proactive preparation should include opening a dialogue between your auditors and the vendor partners that are helping you with XBRL tagging. The reality is that XBRL is new to many auditors, as well. Compared to established vendor partners that have been helping U.S. issuers with XBRL tagging for over a decade, auditors may not have XBRL expertise in-house because it hasn’t been previously required. Moreover, specific elements of the process are new to everyone, such as anchoring, where there is no clear guidance and no established best practice. This is why it’s important that issuers not immediately accept changes suggested by the auditor, but rather have a discussion, including both the auditor and the vendor partner, about suggested changes. You may discover that the auditor’s change is indeed a good option — but another element may be even more relevant or appropriate. This conversation should benefit all parties: The auditor, the vendor and the issuer will all gain more insight and clarity on the company’s financials.
This dialog may take time, potentially hours on the phone with your auditor and vendor partner, but now is the time to have these discussions — when there’s no pressure from a looming deadline. Moreover, it’s important to know that a quality vendor partner will be happy to spend that time with you and your auditor. This is a critical difference between many of the technology-alone vendors that offer a more transactional relationship, versus established vendors with the expertise to offer a true partnership.
Time Equals Cost — Don’t Waste Time
At the end of the day, the burden of the changes required by the ESEF iXBRL mandate comes down to two things: time and cost. Cost tends to get a lot of attention, particularly when it comes to implementing new technology for XBRL tagging. But in fact, time is the biggest cost (and the most precious commodity as filing deadlines approach) for issuers. Getting aligned with your vendor partner — starting to prepare initial mapping, familiarizing yourself with XBRL and ESEF, opening a dialog with your auditor — will inevitably smooth the process. This isn’t just about reducing the stress and hassle of the changes — proactive preparation will help eliminate mistakes, redundancies, and other inefficiencies you pay for with time. Taking the time now, when things aren’t as hectic and deadlines aren’t looming, will pay major dividends down the road.
Bartek Czajka, Director of XBRL Consulting Services at Toppan Merrill, 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.
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