Financial reporting is not immune to the technological advances of this digital era. More and more aspects of reporting are becoming digitised; and for more accurate recordings of data points the industry is moving away from paper trails such as PDF formats, and closer to conversion technology such as iXBRL tagging.
1. The purpose and benefits of ESEF
Below presents a summary of our recent ESEF roundtable discussion which explores, but is not limited to, the following 5 points:
2. Extension and anchoring guidance
3. Design and usability of ESEF files
4. The difference between errors and warnings for ESEF.
5. What's next for ESEF Reporting?
- Mary Tinnelly, ESEF Technical Sales Consultant, ARKK
- Clive Kenny, Head of Finance, iXBRL and ESEF, ARKK
- Shaun Curran, ESEF Consultant, Radley Yeldar
- Jon Rowden, iXBRL leader, PwC United Kingdom
- Paul Braden, Associate Director, KPMG Ireland
- Daniel O'Donovan, Principal, KPMG Ireland
- Maria Diver, Director, KPMG Ireland
- Thomas Verdin, XBRL Europe Vice President
- Karlien Conings, Project Manager, Financial Reporting Council
- Thomas Toomse-Smith, Project Director, Financial Reporting Council
- The purpose and benefits of ESEF
It is important to understand the purpose of ESEF, and the wider possibilities and benefits it will bring to stakeholders. Earlier this year, we saw the first consolidated financial statements in Europe reported in a new format. It presented an opportunity to review the way in which this information is communicated on a wider scale. Whilst it’s important for financial information, its proving to be beneficial for non-financial information where there is also a need for greater clarification and standardisation.
The roundtable identifies 3 main benefits to the offerings of the new standard dictionary reporting structure: clarity, greater understanding and quicker access given the electronic tagging. It also touches upon some of the weaknesses and areas for improvement that we can anticipate being introduced in the future.
- Extension and anchoring guidance
Treating the process as a label matching exercise will not always work. The process becomes more like building a puzzle rather than pairing cards like-for-like. Coming into this with a preconceived tag in mind with the aim to find the same tag in the existing taxonomy is difficult, as it does not always exist. This results in creating additional extensions.
The roundtable discusses how to avoid adding on unnecessary extensions and how to use the tags that are readily available in the taxonomies. Two key learnings are to educate yourself on the existing taxonomies, and to know thoroughly in advance what the company is disclosing. The speakers also draw upon several tips to bear in mind before beginning the process to avoid getting lost down a rabbit hole.
- Design and usability of ESEF files
This is a new way for consumers to absorb information, and there are some noticeable areas for improvement in the design and usability of ESEF files to communicate this information as easily as possible.
Various xHTML files that have been published for ESEF do not have an inline viewer built into the report which has seemingly caused problems for the reader. Such glitches will likely be improved on in the developing stages as we learn from other industries adopting the system. However, this roundtable offers recommendations of best practice regarding the viewer to ensure that the output of information is presented to the human and digital reader as intended. The roundtable offers insight into what can be done on the data input side, to ensure that the reader is consuming the information as effectively and efficiently as possible.
- The difference between errors and warnings for ESEF
Mastering the reporting process for best practice comes down to education. The new ESEF reporting requirements introduces a whole new language that needs familiarisation. Preparing the auditors, those that will formulate the reports, and your board is key to understanding what the warnings and errors mean.
Annual financial statements have, at times, contained some type of errors, and this could be completely basic i.e. the rounding of numbers to an incorrect decimal point. The difference now is that the validation process draws attention to all types of warnings and errors. These are now made much more prominent due to the introduction of elements of ESEF tagging, such as calculations within the report. It has changed the tolerance level for these small errors as they are now flagged more consistently.
The roundtable offers advice on what to do when warnings and errors are highlighted now that they are picked up more flagrantly by the ESEF validation. Drawing on the traditional and new reporting process, the roundtable draws attention to thematic mistakes as users try to avoid addressing the flagged warnings and errors.
- What's next for ESEF Reporting?
This newly found reporting process is a challenge for the traditional corporate reporting model. The process is based on an already established common set of standards in a now familiar template following its first year of use. Whilst the newly found process has helped with:
- Breaking down heavy text documents into easily digestible tags.
- Improved readability of reports in various languages through its standardisation.
- Reducing the number of errors in the data.
- And standardising the varying reporting structure thanks to the new tagging format of the HTML files.
The next steps for ESMA Europe and the FRC is to build upon and improve on any limitations found in the first year of use.
The roundtable draws on further insights that can be extracted from the data by maximising the tagging tool – opening a wide range of doors for XBRL data collection in the market.
Download the full ESEF Roundtable now
There is so much more to be learnt regarding the new ESEF reporting system. To find out more and watch for further insights download the full roundtable video here:
Do you need further information?
Whilst this may seem like a cumbersome task, technology can facilitate this digital migration from PDF to xHTML and make the transition more manageable for a smoother process all round.
At ARKK, we have brought this technology into our process to ensure that the output document is visually appealing and as close to the original document’s formatting, style and layout as possible. Paired with our expert tagging team who tag over 5,000 files a year for iXBRL reporting, you can meet the first ESEF reporting deadline with confidence.
To find out how we can streamline your reporting process contact us now.