ESEF and SEC Filing: Impact On Dual Listing Companies
ESMA – The European Securities and Markets Authority has issued new guidelines related to ESEF (European Single Electronic Format) for dual-listed companies. There are two separate mandates in place for SEC, and ESEF doesn’t mean the work has to be doubled. Let’s understand what the mandate says and how it is going to affect your business reporting.
Impact of ESEF on Financial Reporting
European listed companies that are also listed in the US will face dual reporting obligations from 2021. The new mandate has laid down rules and guidelines with reduced tagging scope for reporting by EU-regulated listed companies. The US SEC has already mandated XBRL filing since 2009, but many dual-listed companies excluded from this requirement. As a result of this, the introduction of ESEF came into being.
According to the new mandate, the EU-regulated listed companies must comply with their annual reports in XHTML formats for reporting periods beginning on or after January 1, 2020. Further, if the Annual report has consolidated financial statements prepared in IFRS, those statements have to be embedded with XBRL tags to generate the report in Inline XBRL (iXBRL) format. Does that mean dual-effort? Read on to find out.
What can you do?
Do different processes and different software mean different tagging solutions?
Not necessarily, when you add the global trend into the electronic reporting mix, it becomes apparent that continuing on separate trends for dual listing companies is not the way to go. In light of this, companies need a solution wherein they tag the document for one regulation and reuse them for the other. It saves time and ensures consistency. But how?
The answer is pretty straightforward – a connected reporting and compliance platform. A platform that offers the issuers greater control and helps maintain full data integrity while saving time, money, and ensuring consistency. Furthermore, the issuers can leverage cloud-based platforms that provide flexibility to work anywhere and meet filing requirements. Such platforms have now become an absolute necessity for growing compliance guidelines and virtual reporting.
When the same platform offers both US and Europe reporting systems, XBRL requirements can be easily managed. And, despite the differences, the burden will not fall on the business, and inefficiencies can be removed by eliminating the use of multiple platforms.
In consideration of the points mentioned above, ESMA has released a comparison of filing rules between ESEF and SEC. Most of the points are similar in both filings. Some of which that are not in line with each other are below:
- Taxonomy Files Published by ESMA
The ESMA (European Securities and Markets Authority) requires referencing the ESEF taxonomy published by ESMA. SEC, on the other hand, allows referencing to taxonomies listed on the standards taxonomies website.
- Pro Tip for Software Providers
To ensure the accuracy of the produced outputs, refer to the correct taxonomy by importing ESEF taxonomies for ESEF and IFRS taxonomy for EDGAR.
- Language of Labels
For ESEF, companies are required to use labels for extension elements to be provided in the same language as the report. Contrarily, SEC requires labels for all elements used in the taxonomy to be provided in the US English only.
- Pro Tip for Software Providers
Ensuring relevant and accurate transformations for EDGAR report using labels with xml:lang=”en-US” and taking into consideration xml:langattributes applied outside of the label link base. For instance, root element of XHTML doc. additionally, need to think of solutions for multi-lingual reports.
- Dimensional Validity of Line Items
ESEF discourages but not forbids the use of negative hypercubes in extension taxonomies, and it requires each line item to be linked to at least one hypercube. On the other hand, SEC also restricts, in some cases, the use of negative hypercubes in extension taxonomies.
- Pro Tip for Software Providers
Due to the difference in dimensional validity of line items, companies are required to produce two taxonomy outputs as ESEF dedicates placeholders for linking line items to an empty hypercube outside of EDGAR standards taxonomies. Hence it cannot be used for EDGAR purposes.
- Default Members
As per the regulations of ESEF, Default members are required to be linked to corresponding dimensions in a dedicated placeholder. For SEC, on the other hand, no such placeholders’ sets are needed for default members.
- Pro Tip for Software Providers
Due to the difference in placeholder requirements, companies need to produce two taxonomy outputs. The ESEF dedicated placeholder is used to link default members with dimensions outside of EDGAR standards and taxonomies list. Hence, it cannot be used for EDGAR purposes.
- Use Segment/Scenario Containers
ESEF forbids the application of XBRL elements such as xbrli:segment in <context> for instance documents. SEC, on the other hand, forbids the application of xbrli:scenario in <context> elements of XBRL instance documents.
- Pro Tip for Software Providers
To ensure relevant and precise transformation on the output report files depending on specific container requirements of EDGAR/ESEF. Also, to ensure that not only <context> elements are transformed in the XBRL instance document, the underlying taxonomy is taken into account (xbrldt:contextElement on definition link arcs).
- Use of the LEI to Identify the Issuer
The ESEF requires the use of LEIs (Legal Entity Identifier) to identify the issuer.On the other hand, SEC requires the use of CIK (Central Index Key) instead of LEIs to identify the issuer.
- Pro Tip for Software Providers
To ensure error-free <context> elements of inline XBRL document are assigned with the correct identifier (and scheme).
- Report Packages and Taxonomy Packages
ESEF requires the use of taxonomy packages 1.0 specification for submission format whereas, SEC requires a separate taxonomy and report files with relevant naming convention as the accepted submission format.
- Pro Tip for Software Providers
Make sure the software outputs two separate submission packages according to the prescribed rules of both manuals. The Taxonomy Packages 1.0 specification, the Working Group Note, and the Working Group Note are followed in the preparation of the ESEF output.
To implement ESEF reporting in your company using iXBRL or to get further clarity on the subject, you can connect with a regulatory reporting expert like DataTracks at enquiry@datatracks.eu, or you can give us a call on +31 (0) 20 2253 702.
About DataTracks:
DataTracks, Singapore, is a global leader in disclosure management software. DataTracks serves 18,000 business enterprises in 26 countries. DataTracks software and services have been used to prepare more than 185,000 compliance reports so far for filing with regulators such as SEC in the United States, ESMA, EBA and EIOPA in European Union, HMRC in the United Kingdom, ACRA in Singapore, SSM in Malaysia, CIPC in South Africa and MCA in India.