While the EU Parliament officially postponed ESEF iXBRL reporting requirements until 2022, some EU member states chose to go ahead with requiring iXBRL for 2021 — and other issuers chose to file iXBRL voluntarily, hoping to take early advantage of getting their highly-consumable iXBRL stories published for the first time. The industry organization, XBRL US, posted filings from some of the hundreds of companies that did file iXBRL and there are several insights to be learned from these 2021 ESEF filings.
Lessons for Issuers
- ESEF (and iXBRL) is an art, not an exact science.
Many of these 2021 iXBRL filers learned firsthand that the ESMA ESEF filing requirements were not as simple as they first thought. They found that telling their financial story through XBRL was much more of an art than a science.
- AI can’t automate everything.
We warned about this a few times over the last year: Because of the nuance and complexity of XBRL tagging, AI can’t fully automate the process. This has proven true in these initial filings, as issuers trying to rely solely on AI-powered tagging software found that those automated tools only got them about 80% of the way — they needed human expertise to check the accuracy and complete the tagging.
- Beware of language translations and wording choices.
Dual-listed issuers discovered errors with translations of their financial reporting documents from their original language into other languages. Inexact translations led to different language versions suggesting different XBRL elements for the same line item in financial statements published in different languages. The XBRL itself should remain consistent regardless of language — that’s part of the beauty of XBRL. Consequently, the tagging process has helped many issuers realize that their language translations were not perfect, and they had to go back and review every line of their financials to ensure consistency in all languages and XBRL. In this way, the ESEF requirement is forcing renewed scrutiny not only of the process for how companies create their financial reports, but also of the result (the report itself). In this case, for example, it’s likely that some dual-listed companies have been using the same incorrect translations for years (or even decades). These kinds of inconsistencies across language versions likely have confused audiences, led to misunderstandings, or even decreased investor confidence.
- The details matter more than ever.
Overall, across issuers that filed in iXBRL, and among external reporting professionals, there appears to be growing awareness that XBRL will be consumed at a very detailed level. This is advantageous to issuers because it allows them to tell their story more clearly and exactly the way they intended, and it makes it easy for audiences to consume that data and understand the details that matter. But it also means that issuers need to double down on the accuracy and consistency of those details, because more people and data consumption technologies are paying closer attention than ever.
- Auditors had an XBRL learning curve, too.
The initial 2021 iXBRL ESEF filings showed that there is a significant learning curve for auditors, just as there was for issuers and inexperienced vendors. Many auditors haven’t had a reason to dedicate resources to learning and fully understanding XBRL until this year, so they’re learning right alongside their clients.
- Some auditors work collaboratively with vendors, some don’t.
Auditors have a heightened awareness of the need for consistency — both within an issuer’s financials and across clients. Such consistency is obviously a great thing, but only if it also means quality tagging. Unfortunately, this was not always the case, with some auditors promoting questionable tagging to their clients. More experienced vendors like Toppan Merrill are willing to share expertise not only with their clients, but also with their auditors — and some auditors have indeed looked for guidance to help accelerate their learning curve. However, many other vendors take a more transactional view of their customer relationship, and they are less willing to engage in discussion or provide guidance with companies or auditors to resolve tagging questions.
- Be prepared to review and challenge your auditor.
The one-year postponement certainly affords both issuers and auditors more time to become XBRL experts. But issuers should not automatically give auditors the final, unchallenged say on XBRL tagging. The review process should be collaborative and involve the issuer’s team, the auditors and XBRL vendor partners. An experienced vendor will have a lot of knowledge and past experience to work from, which should not be disregarded. Ultimately, it is the issuer’s reputation and business that’s on the line.
Lessons for Vendors
- Many issuers were surprised by the iXBRL files that their vendors delivered.
Some issuers that filed iXBRL in 2021 were surprised by what their vendor partners ultimately delivered. Companies are seeing that some vendors aren’t going through a detailed process driven by in-house XBRL expertise. Like the language translation issues mentioned before, some vendors are viewing XBRL tagging as a transactional translation matter — in other words, saying, “We’ll give you the XBRL-tagged document; it’s your job to clean it up.” Issuers that expected a discussion or exchange of knowledge around the rationales for tagging decisions found that their vendor was unwilling or unable to provide that level of insight.
- The editing & revision process took longer than (companies or vendors) expected.
Related to the very first point about iXBRL being more art than science, issuers realized they needed more rounds of edits and revisions than they expected. Indeed, many vendors that took the transactional, automated-software only approach to XBRL tagging were also caught unprepared for their clients’ requests and expectations for multiple rounds of revisions to get their stories right.
- Vendor software will keep getting better.
Even vendors with deep iXBRL experience, like Toppan Merrill, are still fine-tuning their ESEF solutions. At Toppan Merrill, we built our technology for ESEF based on our extensive SEC iXBRL experience. This provides an excellent starting foundation. But already in this first round of 2021 ESEF filings, we learned how we can modify and improve our software and processes to better fit the ESEF requirements. Our overall takeaway was to expect the unexpected — and to have the people and procedures in place to react very quickly when our clients’ unique needs and issues appear. This kind of agility requires time and expertise, and not all vendors have the resources to drive this kind of continuous, real-time improvement process — particularly when the volume of filings will significantly increase in 2022.
The ESEF postponement undoubtedly gave most issuers extra breathing room to prepare to meet the iXBRL filing requirements. But it would be foolish to waste this extra time. The 2021 iXBRL filings give all stakeholders — issuers, auditors and vendors — valuable insights on where things can go wrong and where things can get better. Make sure you are using these next few months to start preparing, because 2022 will be here sooner than you think.
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.
Reach out to jump start a partnership that will bring speed, security, accuracy and efficiency to all of your complex content and communication requirements.