The new obligation will enter into force on January 1 2022 for all listed companies. Annual financial statements will be required to be prepared in a European single electronic format (ESEF), and the obligation includes marking financial statements with appropriate XBRL codes using Inline XBRL technology. The new obligation was prescribed by the European Commission and the European Securities and Capital Market Authority, and the purpose of applying these international financial reporting standards is to guarantee a high level of transparency and comparability of financial statements.
As the European Commission wants to achieve its goals towards digital transformation and green transition in the coming period, the introduction of ESEF for listed companies is one of the first steps. Although ESEF reporting may seem very demanding, the transition to a new form of reporting to capital market stakeholders will bring many benefits such as the availability of structured information to investors, increased levels of transparency, and more. But for starters, below we bring you basic information about XBRL.
WHAT IS XBRL FORMAT?
XBRL is an open international standard for digital business reporting controlled by XBRL International, a global nonprofit partnership. XBRL is used in more than 50 countries around the world. Millions of XBRL documents are created each year, replacing obsolete reports on paper with more usable, efficient, and accurate digital equivalents.
XBRL provides a unique reporting language. From the presentation of the content of financial statements or other types of compliance reports to the presentation of business performance. Also, XBRL technology enables easier, faster, and more secure transmission of reporting data through organizations digitally. Because information is well-defined, platform-independent, tested, and digital, this format makes it easier to use, share, analyze, and add value to data.
HOW DOES XBRL WORK?
XBRL works in a way that improves the accuracy and efficiency of reporting. Allows you to associate unique tags with logged data by enabling:
- Publish reports with confidence, while the information contained in them can be analyzed and tested,
- Persons in charge of checking and analyzing information have at their disposal a whole range of business and logical principles to detect and eliminate errors faster and more efficiently,
- XBRL users can customize the interface,
- Users can be sure that the information contained in the XBRL meets all pre-defined reporting standards.
Extensive definitions and accurate data labels within XBRL enable the preparation, validation, publication, exchange, consumption, and analysis of business information of all kinds.
The information in reports prepared using XBRL standards is interchangeable between different information systems in completely different organizations. This allows the exchange of business information through the reporting chain. People who want to report information, share information, publish performance information, and enable direct information processing can rely on XBRL.
WHO USES XBRL?
XBRL is used in different ways and for different purposes, including:
- REGULATORS
- Financial regulators that require a large amount of complex information on the performance and risks of the institutions they oversee,
- Securities and exchange regulators who must analyze the performance and compliance of listed companies and securities and ensure that this data is available for consumption and analysis by market,
- Business registers are responsible for receiving and publishing various corporate data concerning private and public companies, including annual financial statements,
- Companies that need to provide financial statements and other compliance information to tax authorities for their reports to be processed and reviewed.
- COMPANIES
- Companies that have to share information with one or more of the above regulators,
- Companies that require accurate information flow within a complex organization,
- Supply chains that must share information to control risk and monitor activities.
- GOVERNMENT
- State entities that reduce bureaucracy and simplify the process of reporting to the government by harmonizing data or consolidating reporting obligations,
- Government agencies that improve government reporting by standardizing the way consolidated or transactional reports are created, used within government agencies, and/or published to the public.
- DATA PROVIDERS
- Specialized data providers that use publicly available performance and risk information to develop comparisons, ratings, and other value-added information products for other market participants,
- ANALYSTS AND INVESTORS
- Analysts who need to understand relative risk and impact,
- Investors which need to compare potential investments and understand the fundamental impact of current investments.
- ACCOUNTANTS
- To meet their clients’ reporting needs, they are often involved in creating XBRL reports.
WHAT ARE THE MOST IMPORTANT FEATURES OF XBRL?
Precise Definitions – XBRL allows the creation of multiple, authoritative definitions, known as taxonomies, that encompass the meaning contained in all reporting terms used in a business report. Regulators, those in charge of accounting standards, government agencies, and other groups that need to clearly describe the information they need to report create taxonomies. Likewise, XBRL is a language that can be used indefinitely and extended as needed.
Verifiable Business Rules – XBRL allows you to create business rules that limit what can be reported. Business rules can be logical or mathematical, or both. These rules can be used throughout a range of business processes, and can also prevent unwanted dissemination of unfinished information to the regulator or third party. One of the features of XBRL is certainly the automatic tagging of suspicious or substandard material to allow for quick tracking and correction.
Multilingual support – What many will love is multilingual support. Third-party translations and definitions may also be added. This means that it is possible to present different reports in a language in which they have not been prepared, all without additional effort. XBRL will do this for the user.
OBLIGATION TO MARK FINANCIAL STATEMENTS WITH XBRL MARKS
The obligation to mark financial statements with XBRL marks begins with periods beginning on or after January 1, 2022. Until this period, issuers display notes to the financial statements in xHTML format as an integral part of the annual report but do not mark them with XBRL tags.
The ESEF REPORTING MANUAL is available on the ESMA website, which provides detailed explanations and instructions on how issuers should prepare their financial statements in XBRL format. There, users can also find suggestions for developers on how to include their tools to make XBRL reports compliant with RTS ESEF requirements. It should be noted that ESMA regularly updates the ESEF Manual in light of relevant ESEF-related market developments. And for all the doubts of future XBRL users, the Confida team of experts is here to help.
