December 14, 2020by Team IRIS CARBON

In our previous article, we went a little into the details of creating extension elements and anchoring them to the core ESEF taxonomy concepts. We talked about how extension elements can enhance the quality of your disclosures and aid investor communication when used correctly. And there was a short note against using these elements indiscriminately.

We now come to the last part of our mini-series on the ESEF filing process, where we will talk about your company taxonomy and the four linkbases that comprise it.

Company taxonomy – a vital part of your ESEF filing

Creating your company taxonomy entails using only those taxonomy elements that pertain to your own disclosures – both the standard ESEF elements and any custom elements you have created – and representing them through four linkbases. Bear in mind that you do not submit the entire ESEF taxonomy to your regulator.

Explaining the linkbases

Here’s a brief explanation about each of the four linkbases you need to create as part of your company taxonomy and how they can enhance the quality of your reporting.

  • Presentation linkbase– A presentation linkbase replicates or mirrors your company’s annual financial report in terms of its presentation. You need to check that the taxonomy elements in the presentation linkbase are represented in the same sequence as they follow on the face of your annual report.
  • Calculation linkbase– A calculation linkbase defines and lists out arithmetic relationships in your report. For example, you could represent a calculation such as ‘Revenue – Cost of sales = Gross profit’ in your calculation linkbase. The guideline here is to ensure that you define such arithmetic relationships wherever you can, based on what you have reported. This ensures internal consistency in the data you submit and helps the quality of your reporting.
  • To link back to the IRIS Quality Study, our experts unearthed simple inconsistencies such as totaling errors and incorrect usage of positive or negative signs when they converted published annual reports into iXBRL and established calculation relationships.
  • Definition linkbase– A definition linkbase is used to depict anchored relationships as well as dimension and member structures in, for instance, a shareholders’ equity statement. While things get slightly more technical and trickier around the definition linkbase, it would help to make sure that your extensions are anchored correctly to the best-fit concepts in the ESEF taxonomy.
  • Label linkbase– A label linkbase defines the labels you use in your annual report. If you use ‘sales’ to represent the element that the ESEF taxonomy calls ‘revenue’, then your label linkbase must mention it. This ensures that anyone reading the machine-readable layer of your report sees the line items with the same label you used in your human-readable annual report.

In our experience, companies generally tend to shy away from looking at their company taxonomy. They would rather assume or trust that the software they have picked has applied all these aspects around the taxonomy creation correctly.

While all good software automates a large part of the company taxonomy creation, it is advisable to have the company taxonomy visible to filing teams as an easy reference. This would help solve validation errors and warnings as well as ensure that both the human-readable and iXBRL parts of your document are represented the same way.

Going through the grind of an ESEF filing for the first time is bound to ease your processes for successive filings. But what matters most is bringing in quality right from Phase 1 of the mandate with the right support from your software or service provider. With this, we come to the end of our mini-series of articles on the quality of your ESEF report creation.

Our next article goes back to the broader theme of quality – which is not just in your report creation process but runs through your review and audit process as well.

Reach Out to Us for Free Expert Consultation Around Your ESEF Filing