Navigating Year 1 ESEF Compliance – Lessons Learned and Future-proofing Tips for 2024

December 14, 2023by Neha Gajbhiye0

As the business landscape continues to evolve, so do the regulatory requirements governing financial reporting. One significant shift in recent years has been the introduction of the European Single Electronic Format (ESEF), aimed at standardizing the format for financial reporting across the European Union. As companies reflect on their experiences with Year 1 and year 2 ESEF compliance, it’s crucial to distill the lessons learned and prepare for the future.

In this blog post, we will delve into the key takeaways from Year 1 ESEF compliance and offer future-proofing tips for the upcoming year, 2024.

Understanding and Navigating ESMA ESEF iXBRL Mandate Phases

Most are familiar with the ESMA ESEF iXBRL mandate, unfolding in distinct phases. Phase 1 mandated issuers to tag primary financial statements, while Phase 2 demanded a more comprehensive approach, requiring the tagging of all notes to financial statements using block tagging from a designated list of mandatory tags.

Challenges Encountered in Phase II Year 1 Compliance

Dealing with the rules during the first year of Phase II compliance proved more intricate than anticipated. Key stakeholders, including vendors, end companies, auditors, and regulators, have shared invaluable lessons:

ESMA Filing Rules Precision:

The ESMA ESEF mandate emphasizes accuracy, completeness, comparability, and validation. While most rules align with XBRL specifications, there are ESMA-specific rules such as XBRL package, ESMA manual, ESEF taxonomy, and ESMA conformance suite guidelines. Ignoring these rules can compromise compliance, and stakeholders must ensure ongoing alignment with the latest regulations.

End Companies and Auditors Focus on Review:

Even with sophisticated software, end companies and auditors should not entirely rely on vendors for the entire process. Despite AI-powered software capabilities, achieving 100% accuracy is challenging. A robust review and validation process involving domain experts from software vendors, end companies, and auditors is essential. Providing access to both machine-readable and human-readable forms, facilitated by an iXBRL viewer, enhances transparency and understanding.

Granularity of Block Tagging:

ESMA has not provided a clear picture of the levels for granular block tagging. Auditors must understand that each XBRL tag in the mandatory list should have accounting meaning. The ESMA manual explicitly states that if a note corresponds to more than one element of different granularity, preparers should use each to the extent that corresponds with the underlying accounting meaning of the information.

Moving Forward: Future-Proofing Tips for 2024

To ensure a smoother Year 2 of Phase II compliance in 2024, simplicity is key. Here are some practical future-proofing methods:

1. Dry Run and Early Preparation:

Understanding the mandate, tagging requirements, principles, taxonomy, ESMA ESEF manual, conformance suite guidelines, and validation rules is crucial. A dry run on Annual Report 2022 will familiarize stakeholders with the compliance landscape before the filing season commences.

2. Validations and Test Filing:

As part of the dry run process, ensure that the 2022 iXBRL package is successfully validated through vendor, auditor, and regulator software. Address any warnings or errors promptly and comprehensively.

3. Calendar Planning:

Plan the AR2023 calendar meticulously, involving all stakeholders—vendors, end companies, auditors, translators, and regulators. Adhering to the calendar minimizes the risk of late filings and ensures error-free submission.

4. Communicate and Follow-ups:

Finally the most effective way of smooth filing is effective communication. Take regular follow-up with each stakeholder if there are changes in the agreed timeline and if any it’s very necessary to communicate the same to every stakeholder to be on the same page.

Conclusion: Navigating the Rapid Evolution of ESEF

In conclusion, as the ESEF landscape evolves, staying informed is key. Regularly checking blogs and industry platforms, such as LinkedIn, can provide valuable practice. For a seamless ESEF compliance journey, consider partnering with IRIS CARBON®, leveraging their 17 years of experience in the XBRL/iXBRL domain. With a dedicated subject matter expert, robust customer engagement team, and comprehensive support services, IRIS CARBON® not only ensures compliance but also supports ESG report authoring, contributing to the global digital transformation of sustainability data.

To explore the latest developments and industry trends, and to discover how IRIS CARBON® can empower your organization’s ESEF compliance journey, visit our website or contact our team for personalized assistance

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