Reviewing XBRL Tag Selection in ESEF Reporting

The European Securities and Market Authority (ESMA) mandated a new financial reporting format, ESEF, for all issuers on the EU regulated market from 1 January 2020. ESMA devised a set of rules for the issuers to make their Annual Financial Statements (AFS) compliant with the ESEF reporting format. One of its rules includes XBRL tags in the ESEF report to make the consolidated financial data readily available to the public.

But the question is, what are XBRL tags?

The XBRL tags are created in the report to uniquely define the contents, compliance, and performance of ESEF reporting, using categorization schemes called taxonomies. XBRL tags help replace human-readable reports with a more accurate and effective machine-readable format, allowing easy comparability and shareability.

However, the selection of XBRL tags can be tricky as they will be rendered useless if they do not closely match the financial meaning of the targeted information. Therefore, it is essential to select and assign accurate XBRL tags for reporting the company’s financial data.

Importance of XBRL Tag Selection

The selection of XBRL tags in ESEF (European Single Electronic Format) reporting is crucial for ensuring that financial data is accurately represented and easily comparable. Proper tag selection enhances transparency, consistency, and usability of financial reports, making it easier for regulators, investors, and other stakeholders to analyze and interpret the data.

How to Accurately Select XBRL Tags?

XBRL tagging adds value to every activity in ESEF reporting, from preparing and validating financial reports to analyzing and exchanging financial details. While preparing financial statements, issuers must select tags based on the disclosed information’s closest financial meaning. When no standard element exists in the taxonomy that accurately represents the financial meaning, the issuer can create and anchor an extension to a tag that reflects the closest meaning.

Various factors need to be examined while considering the closest financial meaning, which includes:-

Accounting reference
Documentation or definition
Standard label
Calculation relationships
Additional attributes like balance type, period type, etc.

With several attributes to analyze, selecting the wrong XBRL tag is a common error. Therefore, issuers must thoroughly review XBRL tags to meet the ESEF reporting regulations successfully.

Key Considerations in Tag Selection

Relevance: Ensure that the tags (ESEF Tagging) selected accurately reflect the financial data being reported. Each tag should correspond to the correct financial element as per the ESEF taxonomy.
Accuracy: Accurate tagging is essential for compliance and for maintaining the integrity of the financial data. Incorrect tags can lead to misinterpretation of the financial statements.
Consistency: Use consistent tags across different reporting periods and documents. This consistency helps in maintaining the comparability of financial data over time.
Completeness: All relevant financial data should be tagged. Omitting tags can result in incomplete financial reports, which may affect compliance and analysis.

Why Do You Need to Review the XBRL Tag Selection?

Creating error-free, compliant reports is the aim of financial reporting. Merely scanning through the standard tags in the taxonomy isn’t enough for a proper and practical selection of XBRL tags. It is also necessary to consider the accounting standards and the various factors of choosing the closest standard tags from the taxonomy.

Apart from assigning accurate tags to ESEF reporting, reviewing XBRL tags has the following benefits:-

Reduces Time and Cost: As the data quality increases and the preparation time decreases, the cost of creating ESEF complaint reports reduces.
Requires Minimal Human Effort: An effective XBRL tagging review helps companies lower their efforts of creating and submitting accurate consolidated reports with the regulator.
Reduces Extensions: Creating and anchoring several extensions to the standard tags can make the report complicated to understand. However, an effective review can help minimize the extensions, properly representing the financial information.

XBRL tagging is known for being error-prone. This is why reviewing XBRL tags before submitting the reports with the regulator is the best practice for businesses to avoid any errors or anomalies in the process.

Best Practices for Tag Selection

Understand the ESEF Taxonomy: Familiarize yourself with the ESEF taxonomy, which provides a hierarchical structure for classifying financial information. This will help in selecting the most appropriate tags for each financial element.
Use Tagging Software: Utilize ESEF reporting software that can assist in the accurate selection of XBRL tags. These tools often come with features that suggest appropriate tags based on the financial data input.
Review and Validate: Regularly review and validate the selected tags to ensure they remain relevant and accurate. Validation tools can help identify any discrepancies or errors in the tagging process.
Stay Updated: Keep abreast of any updates or changes to the ESEF taxonomy and XBRL standards. Regulatory bodies may update taxonomies periodically, and staying informed ensures continued compliance.

Common Challenges and Solutions

Complex Financial Structures: Companies with complex financial structures may find it challenging to select the appropriate tags. In such cases, consulting with XBRL experts or using advanced tagging software can be beneficial.
Frequent Taxonomy Updates: Changes in the ESEF taxonomy can require adjustments in tag selection. Regular training and updates from regulatory bodies can help companies stay current with these changes.
Manual Errors: Manual tagging can lead to errors. Automated tagging tools can reduce the risk of human error and improve the accuracy of tag selection.

Reviewing XBRL tag selection is a critical component of ESEF reporting. By ensuring the relevance, accuracy, consistency, and completeness of tags, companies can produce high-quality financial reports that meet regulatory standards and facilitate effective analysis. Leveraging ESEF reporting software and staying informed about taxonomy updates can further enhance the tagging process, leading to more reliable and compliant financial reporting.

Make Your Way Towards Error-Free ESEF Reporting

Reviewing XBRL tags, creating reports, and submitting them with ESMA can be a tiring process, diverting your attention and efforts from your core activities. But not when you have a trusted ESEF partner like DataTracks! By keeping their software up-to-date, DataTracks provides reliable and flexible ESEF Reporting Software solutions. With the experience of 19+ years and 200,000+ successful reports, DataTracks can help you streamline your financial reporting process.

So what are you waiting for? Connect with an ESEF expert @+31202253702 or email at enquiry@datatracks.eu to ensure a seamless filing process.

FAQs

Why is XBRL tag selection important in ESEF reporting?

XBRL tag selection is crucial in ESEF reporting because it ensures that financial data is accurately represented and easily comparable. Proper tagging enhances transparency, consistency, and usability of financial reports, making it easier for regulators, investors, and other stakeholders to analyze and interpret the data.

How can companies ensure accuracy in their XBRL tag selection?

Companies can ensure accuracy in their XBRL tag selection by familiarizing themselves with the ESEF taxonomy, using reliable ESEF reporting software, regularly reviewing and validating selected tags, and staying updated with any changes to the ESEF taxonomy and XBRL standards. Automated tagging tools can also help reduce the risk of human error.

What are the best practices for selecting XBRL tags in ESEF reporting?

Best practices for selecting XBRL tags in ESEF reporting include understanding the ESEF taxonomy, utilizing tagging software, regularly reviewing and validating tags, and staying informed about updates to the taxonomy and XBRL standards. Ensuring relevance, accuracy, consistency, and completeness in tagging are also key practices.

What challenges do companies face in XBRL tag selection, and how can they overcome them?

Companies face challenges such as complex financial structures, frequent taxonomy updates, and the potential for manual errors in XBRL tag selection. These can be overcome by consulting with XBRL experts, using advanced tagging software, regularly training staff, and utilizing automated tagging tools to reduce the risk of human error and improve accuracy.