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ESEF and SEC Filing: Double Requirement Means Double the Work?

Cloud
ESEF Reporting
Financial Reporting
SEC Reporting
XBRL
ESEF FPI
6 min read
AUTHOR:

Andromeda Wood

Vice President of Regulatory Strategy
Published: 6 April 2020
Last Updated: 6 July 2022

As the 2021 annual filings are approaching, the European Single Electronic Format (ESEF) is undoubtedly one of the big items on the radar for 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 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.

ESEF Excellence Kit: Tackle ESEF, Future-Proof Your Annual Report

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.

As a result, the introduction of 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.

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.

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? Read our Dual-Filers datasheet, or 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 wood headshot
Andromeda Wood

Vice President of Regulatory Strategy

Andromeda “Andie” Wood is vice president for regulatory strategy for Workiva and will be bringing her knowledge of the technology and regulation landscape in Europe to help inform the EMEA strategy and support the region's growth. She is an expert in data modeling, taxonomy design, and the role of technology in corporate reporting.

Andie is an experienced data and semantic modeler and also contributes to the XBRL standard at the international level. She brings a wealth of knowledge and a deep understanding of regulatory impacts to global firms emerging from the European Union's Transparency Directive and Corporate Sustainability Reporting Directive (CSRD). Andie also serves as a member of the XBRL International Inc. Best Practices Board and is co-chair of the XBRL Entity-Specific Disclosure Task Force.

Previously, she was a senior technical manager for the IFRS Foundation helping to develop the IFRS Taxonomy and Standards. She served as a technical expert at global audit and consulting firm, Ernst & Young.

Andie is a frequent speaker on trends in technology for corporate reporting and publishes various articles on XBRL, ESG, ESEF and digitally transforming corporate reporting. She has also written a column for Accountancy Today on technology and COVID impacts. She has a bachelor of arts in biological sciences from St Catherine’s College at Oxford University.

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