ESEF and SEC Filing: Double Requirement Means Double the Work?
As the 2019 annual reports are filed, the European Single Electronic Format (ESEF) is one of the next big items on the radar of issuers. For some, it might seem like an unwelcome compliance burden—particularly given the current environment—but it's important for companies to take the opportunity to look at how sustainable their current reporting processes are.
Dual-listed companies get all the benefits of extra exposure to the capital markets and investors, but in return, they have to fulfil multiple regulatory and stock exchange filing requirements. For many dual-listed companies, however, the ESEF is not their first electronic reporting mandate. They are already working with processes disrupted by changing regulation and electronic reporting.
So, is the ESEF just another addition to the filing requirements that creates even more disruption for dual-listed companies? Not necessarily. Just because it's two mandates, that doesn’t have to mean double the work.
U.S. SEC issuers
A particular focus is placed on dual-listed issuers in the U.S. and Europe. The U.S. Securities and Exchange Commission (SEC) has mandated XBRL filing since 2009 and has recently started moving to Inline XBRL®.
Many dual-listed issuers were excluded from the requirement until 2017 when the SEC announced that they would accept filings prepared using the IFRS Taxonomy. These issuers have only had a short period of time to get accustomed to electronic filing, and the majority have not yet made the move to Inline XBRL.
As a result, the introduction of the ESEF for the European filings has not always been welcomed. Many companies and issuer bodies have highlighted how a second electronic reporting requirement with separate rules and a separate taxonomy is an unnecessary dual compliance burden.
But, are the two mandates really that different?
The important similarities
Firstly, let’s take a look at how the ESEF requirement and the U.S. SEC requirements are similar.
The two mandates might feel an ocean apart, but there are a number of key similarities that can make a difference to the way that dual-listed companies implement the ESEF:
- Inline XBRL — Both the ESEF and the SEC requirements are based in Inline XBRL—a single report containing both the human-readable report and the computer-readable XBRL® tagging.
- Taxonomy — They may have different names, but the IFRS Taxonomy that the SEC requires is the same IFRS Taxonomy that underpins the ESEF tagging. They’ve been given different branding, but just as the accounting standards are the same, so are the tags applied. Both mandates also ask taggers to consider the accounting references and documentation when making their selection.
- Extensions — Both mandates ask preparers to create additional items if they do not find a matching base taxonomy tag, and both ask for those extensions to be included in core XBRL relationships (linkbases) where possible.
In addition, the two bodies involved in setting the rules for the mandates have worked together to align, where possible, and to allow some differences between the mandates to be cross-filed, if necessary.
The key point is that tagging doesn’t have to be a literal dual-effort. A connected reporting and compliance platform allows issuers to reduce manual efforts and take advantage of processes that increase efficiency.
The similarities listed above, and the regulator efforts to converge the two reporting programs, are all good news for dual-listed companies. There are, however, still a number of differences, and this is where your software platform needs to step up:
- Scope — The European Securities and Markets Authority (ESMA) has started the ESEF requirements with a reduced tagging scope compared with the U.S. mandate. And, since the ESEF mandate doesn’t use the concepts of tagging levels in the same way, there is some work to be done to ensure that the 2022 addition of block-tagging for ESEF does not result in inconsistencies.
- Anchoring — ESMA has introduced an additional requirement related to extensions that is not reflected in the SEC rules. The SEC has announced that it will be legal to include these additional anchors in filings, but not all issuers will want to go that route.
- Specificity of rules — The EDGAR filing manual is produced in a very different style to the manuals produced for ESEF reporting in Europe, and it is certainly not a friendly document to read. Understanding and managing the subtle differences and making sure that your software platform successfully produces two valid filings is not something that issuers should have to worry about themselves.
These differences, however, do not result in the two mandates reverting to a full dual-effort.
A software platform with full support and experience in both mandates can help issuers avoid unnecessary duplicate effort, in addition to steering clear of repetitive manual report and tagging reconciliation processes.
And, even more XBRL on top?
In some countries, companies are already producing XBRL for statutory and tax purposes. At the group level, that requirement might already be resulting in a second tagging effort, albeit on a different timescale.
These local reporting requirements often do not use the same taxonomy as the listing requirements, especially not where local GAAP is used for reporting. For some teams, this adds another set of tools and processes, even where content is shared with their other regulatory filings.
What approach should you take?
Companies may be tempted to look at their ESEF and SEC obligations separately—different processes, different software, different tagging solutions. But, when you add the global trend toward digital reporting into this mix, it becomes apparent that continuing to bolt-on additional solutions and processes is unsustainable. Aligning report content and tagging to the same taxonomy across multiple platforms is an extra burden on already busy reporting teams.
Many companies already report the same numbers, share content, and in many cases, even file the same design to their multiple regulators. A connected reporting and compliance platform provides these issuers with greater control of the entire process and maintains full data integrity by creating a single source of truth. Plus, cloud-based platforms provide issuers with the flexibility to work wherever and whenever they need to in order to meet filing requirements—an absolute necessity for the growing number of virtual reporting and compliance teams.
When the same platform also provides dual-listed companies in the U.S. and Europe with a better way to manage the XBRL requirements, despite the differences, then multiple processes and multiple platforms becomes an inefficiency that can be removed.
Even dual-listed companies not currently facing a dual-XBRL requirement should consider taking another look at their reporting process and options. Electronic reporting is increasingly common and connected reporting and compliance is an advantage across the entire reporting ecosystem.
Looking for more advice on how to meet SEC and ESEF filing requirements? Get in touch with us to schedule a consultation call.
Inline XBRL® and XBRL® are trademarks of XBRL International, Inc. All rights reserved. The XBRL® standards are open and freely licensed by way of the XBRL International License Agreement.
About the Author
Andie’s main area of interest is the role of technology and data in the future of corporate reporting. She is an experienced data and semantic modeler and has been working with XBRL® initiatives for over 15 years. Andie is co-chair of the Entity-Specific Disclosure Task Force, a member of a number of other XBRL International task forces, and a member of the FASB Dimension Modeling Working Group. Prior to her role with Workiva, Andie spent five years at the IASB working on the IFRS Taxonomy and technology in corporate reporting. Andie has a degree in biological sciences from St Catherine’s College, Oxford.