Why Reviewing XBRL Tag Selection Is Essential to ESEF Reporting
As we head toward the end of the year, many issuers will be starting to take a more detailed look at what they need to do to comply with the European Single Electronic Format (ESEF). With the first filings expected in early 2021, a clear understanding of where the effort lies will help issuers be prepared. It may be tempting to wait to change the format until late in the process, but the shift to the ESEF is not as easy to automate as it might first appear.
One of the key areas to think about is the application of the XBRL® tags to the IFRS consolidated financial statements.
ESMA provides guidance around tagging, and many other areas of the mandate, in the ESEF Reporting Manual. For example, a key piece of guidance can be found in paragraph 1.1.3:
“The standard label of an element is often longer and more detailed or may be phrased differently to the label being reported in practice within IFRS financial statements. This by itself is not a sufficient reason for an issuer to decide against using a particular taxonomy element. A preparer has to consider the accounting meaning of a taxonomy element when making this judgement.”
In this blog, we will use real examples to examine this tagging process in more detail and provide tips on how you can make the best decisions in element selection.
Make informed decisions
As stated in the guidance, issuers should be selecting elements based on the closest accounting meaning to the information being disclosed. When no standard element exists that accurately represents the accounting meaning, an issuer would then create an extension and anchor that extension to a standard element (or elements) that does reflect the closest accounting meaning.
When considering the closest accounting meaning, there are various factors that should be examined, including:
- Accounting reference
- Calculation relationships
- Standard label
- Other attributes, such as period type, balance type, etc.
With different attributes to analyse, determining the appropriate element choice requires manual review to make an informed decision. This goes beyond matching standard labels of elements with document labels. It is critical for issuers to ensure analysis and review of these aspects to verify accuracy to the closest accounting meaning.
Looking beyond labels is critical
Let's look at this in more detail by reviewing an example that shows why issuers need to look beyond labels.
Investments in associates, joint ventures and subsidiaries:
A common disclosure to illustrate the importance of element review relates to disclosures in investments in associates, joint ventures and subsidiaries.
Elements exist in the taxonomy that include "associates," "joint ventures" and "subsidiaries" within their labels. However, it is important to understand the accounting standards being utilised as well as the intent of the elements available.
Taking a look at the example disclosure below, the entity discloses two lines on the Statement of Financial Position that reference investments in subsidiaries and joint ventures. The entity further discloses in the notes that the consolidated joint ventures are accounted for under equity method investments, while the parent company’s investments are recognised under IAS 27 Separate Financial Statements. This distinction is significant in selecting the appropriate elements.
- Primary Financials
- Disclosure Notes
Investments in subsidiaries and joint ventures (parent company):
Investments in subsidiaries (i.e., where the parent company holds more than 50% interest of the share capital, or otherwise controls the company) and joint ventures (i.e., an entity over which the parent company has significant influence without control over the financial and operating policy decisions of the investee) are recognised at cost according to IAS 27.
Investment in joint ventures (consolidated):
The company’s investments in its joint ventures are accounted for using the equity method. Under the equity method, the investment is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the company’s share of net assets of the joint venture since the acquisition date.
Focusing specifically on labels for the second line disclosed, a search would provide the element "Investments in joint ventures," which by label review would look to be the best for tagging. However, in reviewing the reference and documentation of that element, it illustrates that this element is intended for those disclosures under IAS 27.
As such, this element would only be appropriate for the parent company’s disclosure, and further review for an equity method investment element is necessary for the consolidated financials.
As illustrated above, selecting the most appropriate XBRL tag requires more than a quick look at the "Standard Label." Consideration of accounting standards being utilised and review of the various properties of standard taxonomy elements are also essential.
This assessment builds beyond label matching, which is the common source of tag determination in most auto-tagging software, to include a review of the accounting meaning behind the line items.
Get in touch with Workiva to learn how the right tools and resources can help you make the best informed decisions in element selection.
Interested in learning more about XBRL tagging for your ESEF annual report? Stay tuned for future blogs in the series where we will take a closer look at extensions and anchoring.
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