6 Step Guide to High-Quality ESEF iXBRL Reporting

ESEF iXBRL Reporting

From January 1, 2022, it will be mandatory for companies in the UK to comply with ESEF requirements by preparing annual reports for 2021 in the xHTML format, with XBRL tags embedded in the documents.

The mandatory compliance requirement comes after a year when companies were allowed to voluntarily meet ESEF iXBRL requirements with their 2020 annual reports.

Recently, the Financial Conduct Authority (FCA) and the Financial Reporting Council (FRC) wrote a letter to the CEOs and CFOs of companies in the UK, setting out expectations for the quality of annual reports that will be submitted to the FCA in compliance with ESEF iXBRL requirements.

“A structured AFR (annual financial report) will only improve the accessibility, analysis, and comparability of information if it is of sufficient quality and subject to appropriate review,” they said in the letter.

Further, the annual reports submitted in the first year of mandatory ESEF iXBRL compliance will be studied for their quality and usability by the FCA and the FRC. It becomes vital then for companies in the UK to ensure that their ESEF iXBRL annual reports meet the quality expectations of the two organizations.

Fin-X Solutions has compiled a ‘6-step guide to high-quality ESEF | UKSEF reporting’.

Step 1: ESEF or UKSEF. Choose your taxonomy

ESEF filers in the UK have a choice between using the ESEF and UKSEF XBRL taxonomies for tagging their information. The ESEF taxonomy they can use is the one that European companies have to use. The 2020 ESEF taxonomy is what companies need to use currently as the latest 2021 ESEF taxonomy can only be used from March 2022.

The UKSEF taxonomy is an extension of the ESEF taxonomy and allows users to tag additional information such as carbon emissions information under the Streamlined Energy and Carbon Reporting (SECR) requirements. It is not mandatory for companies in the UK to use the UKSEF taxonomy.

(ESEF – European Single Electronic Format; UKSEF – UK Single Electronic Format)

It would help companies to study the ESEF and UKSEF taxonomies before choosing one of them.

A recent FRC survey on the ESEF readiness of 46 companies in the UK revealed that about 15% of them are opting for the UKSEF taxonomy and 13% for the ESEF taxonomy. Over 30% of the companies were awaiting more guidance about the taxonomy to be used.

Step 2: Understand the taxonomy

The preparation of a structured annual report involves mapping each disclosure in the report to the correct ESEF or UKSEF taxonomy element. The mapping process calls for a sound understanding of the taxonomy being used.

A poor understanding of the taxonomy can lead to extensions or custom elements being used unnecessarily. Extension elements need to be formed only when companies cannot find a taxonomy concept that correctly conveys the accounting meaning of a particular disclosure. Improper use of extension elements is often blamed for the poor quality of XBRL filings everywhere.

Firms also need to ensure that the extension elements they create are ‘anchored’ to the core taxonomy
(ESEF or UKSEF) elements with the nearest accounting meaning.

Step 3: Pick the right XBRL reporting software solution

A lot depends on the software that firms use for your ESEF iXBRL filings. The software that firms should go for is one that is XBRL certified and is backed by years of experience in XBRL-based regulatory compliance. Firms also need to look for software that consistently tops independently-conducted XBRL filing quality assessments. Want us to name a solution that checks all these boxes? It’s IRIS CARBON®.

IRIS CARBON® is a cloud-based, collaborative solution brought to you by IRIS Business Services, India, which is doing business in the UK under the trade name Fin-X Solutions.

Step 4: Validation checks and a test-run

Once complete, a report in the iXBRL format should be run through an XBRL validator to spot errors, warnings, and calculation inconsistencies. Errors need to be resolved before a filing is submitted, or else the filing risks being rejected by the FCA. Warnings indicate issues within the file that need to be investigated. However, all warnings need not be resolved for a filing to successfully go through. Calculation inconsistencies indicate that some of the numbers in the ESEF file do not add up. Calculation inconsistencies need to be investigated.

It would help if firms did a test filing with the FCA using a prior-year annual report in iXBRL format. They would know if the filings meet the basic requirement of going through the FCA gateway. You can even start your ESEF trial run with Fin-X Solutions.

Step 5: Ensure that your xHTML looks just like your PDF annual report

Most companies treat the ESEF iXBRL file as a document different from their traditional PDF annual reports. They believe an ESEF xHTML file needs to be created in addition to the PDF. Some others believe the xHTML version is meant to replace PDFs. The trust is, an xHTML report should be an exact replica of a firm’s PDF annual report, but with machine-readable and human-readable layers, which is what the inline XBRL format is all about.

Firms should ensure that while concentrating on matters such as XBRL tagging, anchoring, and validations, they do not end up with an xHTML report that is not as attractive as their PDF annual report. There have been instances where ESEF reports filed voluntarily in 2020 fell short in the aesthetics department. Read our blog: Avoid running into style issues with your FCA filings.

Step 6: Voluntarily have your ESEF iXBRL report audited

The ESEF iXBRL mandate comes with an audit requirement that countries may formulate independently. The UK does not have a mandatory audit requirement for ESEF iXBRL reports at this stage. However, investors would assume that an iXBRL file they have access to has gone through an audit process. It would help companies to have their iXBRL reports audited, both in the spirit of filing high-quality ESEF iXBRL reports as well as creating transparent investor and stakeholder communication.

A high-quality iXBRL filing will facilitate:

  • Richer and more meaningful financial information
  • Reduced cost and time associated with compliance
  • Improved efficiency and accuracy in decision-making
  • Increased comparability and understandability of financial statements

Fin-X Solutions can facilitate high-quality ESEF iXBRL compliance.