A Catalyst for Change? 4 Lessons From the First ESEF Filings
Earlier this year, the European Commission gave countries the option to delay the enforcement of the European Single Electronic Format (ESEF) by a year.
But the delay wasn’t universal. Companies in Germany, Czech Republic, Austria and Slovenia had to file their first ESEF report this year and other organisations decided to get ahead of the game by filing early.
In total, there were around 1,000 companies that filed this year. And there are lessons that can be learned from their experiences. Many found that ESEF wasn’t as simple as it initially appeared to be. In isolation, the basic requirements of the mandate – to include XBRL® tagging and convert the annual report to XHTML – sound like they could be easily addressed by bolting on a solution to the end of the process. But, of course, ESEF doesn’t exist in isolation. It’s just the latest in a long line of process-altering mandates.
While ESEF could be seen as ‘just another mandate’, it’s one that introduces a host of new complexities. Where some decided to tack on a point solution to solve their ESEF problems, others took the mandate as an opportunity to rethink the way that their annual reports were managed. By expanding focus beyond just ESEF and thinking about future-proofing your organisation against further inevitable regulatory challenges, it’s possible to file your first ESEF report with confidence and improve the efficiency of your end-to-end reporting processes.
Here are some of the hidden complexities involved with ESEF, alongside other insights from the first year of filing:
1. Filing rules shouldn’t be ignored
The focus in the run up to ESEF has been on making sure that the XBRL tagging is valid, and quite rightly so. But this doesn’t mean that ESEF supersedes all existing filing rules and regulations – compliance with these still needs to be a fundamental concern.
Most of these rules and validations are associated with XBRL®, but some have more basic focuses like how files are packaged together, which files should and shouldn’t be in that package, and how these files should be named. Although this should be one of the ESEF basics, a surprising number of companies have clearly had problems here. Having tunnel vision on the changes brought about by ESEF has obscured some fundamental focuses. It’s always important to keep the big picture in view.
2. Tag the actual fact
Inline XBRL (iXBRL™) aims to make the link between the data that we read and the data available for computer analysis crystal clear. This should be easily evidenced by opening filings in an iXBRL™ viewer and turning on highlighting. Helpfully, XBRL International have kindly provided all filings with viewers, but if you don’t have one to hand then you can try here.
There have been a handful of filings with twin numbers – one for the reader, one for the computer. Although the hope is that these instances are rare, they still present a transparency issue. These are errors that really shouldn’t happen and can be easily avoided.
3. Beware of warning signs
ESEF validation has been a source of confusion for many. Particularly when “warning” messages flash up. In an ideal world, there shouldn’t be any errors showing when validating results on your final ESEF filing. But even perfect filings can end up with warning messages – which is a good sign that they aren’t always something to be worried about.
Some warning messages are more important than others. If you receive a warning that something in the XBRL isn’t quite right, this could be an indicator of a significant problem that may make it harder for investors to work with your filing. On the other hand, if the warning message asks you to take a second look at some of your negative numbers, then this could be something that you just need to quickly double-check.
It’s not always clear which warning messages are important, so it’s important that you are getting good advice. The right advice will save you a lot of time and reduce stress. And if you’re worried about not seeing warning messages at the moment with your current software, it’s always worth having a quick check on XBRL International’s filing portal.
4. Overuse of images is making for a poor investor experience
Design considerations are also important – you’re creating a report knowing that it’s going to be digested by investors, so you want to make sure that it’s as accessible as possible. Some organisations struggled with this, with a number of filings taking much longer to load than others. It’s a detail that can be overlooked but, if done incorrectly, leads to a poor investor experience.
The slow loading times aren’t related to obvious design elements. Some ESEF reports are incredibly long, so it’s not a surprise that they take longer to load. But there are a few cases of neat looking, not overly complex reports with minimal design elements that still take a minute or longer to load. The most common reason for this is large whole-page background images that are being used to keep the tables tidy.
Solving this issue can be easy if you find a solution that can keep your tables looking organised without needing to find workarounds that end up significantly adding to the file size. After all the effort that has gone into your first filing, you don’t want to keep your investors waiting.
The biggest lesson: be prepared
As you prepare for your first ESEF filing, think about the bigger picture. Those who went through the process this year found that creating an XBRL filing was about more than just the tagging. Your priority is to create accurate, accessible reports that show off your company’s results. By thinking about how this can be achieved by improving the entire end-to-end reporting process – and not just in the final yards of the last mile – you will set yourself up for success both today and in the future.
XBRL® is a trademark 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 modeller and has been working with XBRL® 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 Modelling 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.