If you are an LSE-listed company, you need to prepare your annual financial reports in Inline XBRL (iXBRL) format. These iXBRL reports need to be in xHTML format and tagged with machine-readable data. This provides a complete and accurate picture of the company’s financial situation and enhances the business reporting processes for the compliance teams.
From January 1, 2022, it has become mandatory for all the companies in the UK to comply with ESEF requirements by preparing annual reports in the xHTML format, with XBRL tags embedded in the documents.
Recently, the FCA wrote to all the CEOs and CFOs of companies in scope of the ESEF mandate – emphasizing the importance of filing high-quality disclosures under the mandate.
This article outlines the Six Primary Concerns that companies in the UK should consider before filing their ESEF iXBRL report.
Retaining Style/Design Of PDF Into XHTML
ESEF reporting requires converting the PDF format of the annual reports into iXBRL format. This involves matching the data in the accounts and tax computations with XBRL tags from the appropriate taxonomies using a software tool.
Ensure that your XHTML looks just like your PDF annual report. Many firms treat the ESEF iXBRL file differently from the regular PDF Annual Reports. They feel that in addition to the PDF, an ESEF XHTML file must be created. The truth is that an XHTML report should be a carbon copy of a company’s PDF annual report, but with machine-readable and human-readable layers, which is exactly what the inline XBRL format is for. This conversion inevitably involves a lot of time and effort as there needs to be a one-to-one match between financial line items and tags in the report.
Fin-X Solutions knows how to avoid running into style issues with your FCA filings.
Getting A Timeline/Calendar In Place
Marking the dates from initiating the process of preparing the ESEF iXBRL report to filing the AFR to the regulators is of key importance.
Crafting a timeline/calendar wherein all participants, both in the company and outside of it (design agency, ESEF vendor, auditor) fall in sync, is fundamental to the success of your ESEF filing.
Understanding ESEF Taxonomy And Choosing The Right XBRL Tags
Taxonomies can be quite complicated and perplexing at times. ESEF filers in the UK have a choice between using the ESEF and UKSEF XBRL taxonomies for tagging their information. The ESEF taxonomy is the same that European companies use. While 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.
Once the appropriate taxonomy is adopted, there is a need to emphasize getting the XBRL tagging right. Depending on the taxonomy the tags are chosen. Tagging defines the quality of an ESEF iXBRL report. Companies need to cater strict attention during the tagging process and watch out for common problems that can drain the quality. Companies need to look for a suitable XBRL tag in the core taxonomy whose accounting meaning corresponds to the specific disclosure. Correct tagging requires a good understanding of both the reported information and the accounting meaning of the tags in the core taxonomy.
Choosing Extensions And Anchoring Wisely
If no suitable tag is found in the core taxonomy for a given disclosure, a company can create a custom tag or ‘extension’ to represent the disclosure. Extension tags, which allow entity-specific disclosures, are more difficult for users to analyze and compare than the standard, core taxonomy tags. Hence, extension tags need to be created sparingly. Moreover, the extension tags need to be ‘anchored’ to elements from the core taxonomy with the closest accounting meaning. ESMA is the first regulator to require companies to ‘anchor’ any extension or custom elements they create. Anchoring enables easy comparability.
A poor understanding of the taxonomy can lead to extensions or custom elements being used unnecessarily. Improper use of extension elements is often blamed for the poor quality of XBRL filings everywhere.
Once complete, a report in the iXBRL format should be run through an XBRL validator to spot errors, warnings, and calculation inconsistencies. It is necessary to pass through the three levels of validations:
- At the level of the ESEF Service Provider,
- At the level of the Auditor (Optional)
- Finally, at the level of the local regulator (The FCA National Storage Mechanism this instance).
It is imperative to make sure your ESEF iXBRL package passes all levels of validations.
IRIS CARBON®, the SaaS solution that Fin-X Solutions provides, comes with an in-built validator called IRIS Bushchat, which can help you spot issues with your filings.
Check if you can do a test filing with the regulator
During performing validation checks, issuers may pass one level but fail in another. Therefore, it is wise to do a dry run with an older annual report, (perhaps from the prior year) ahead of the live ESEF filing. 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. Carrying out a test run with an ESEF vendor can help you assess the results for yourself.
You can even start your ESEF trial run with Fin-X Solutions. Upload your prior-year annual report on this link and receive a free sample-tagged document from us.
Even though ESEF Reporting might seem easy, it should be kept in mind that there are several risks and issues involved at a business level, if not done correctly. With that being said, there is a need for proper professional assistance to develop the annual reports as per the ESEF mandate.