Ahead of filing their annual financial report in ESEF, companies are navigating the new regulatory requirements. Tagging errors are common, but are easily avoided. Here are some of the most common tagging mistakes to be aware of.
The ESEF (European Single Electronic Format) reporting format was introduced in June 2019 by ESMA to help standardise annual financial reporting for European listed companies. Since it applies to annual accounts for financial years beginning on or after 1 January 2020, companies under its scope are getting ready to submit their first annual financial reports in ESEF; and some have already filed.
Understandably, as firms navigate the changes and new reporting requirements, they are making mistakes which can affect the accuracy of their reporting. In a recent joint letter, the FCA and FRC emphasised once again the importance of submitting quality data when reporting in ESEF. So, it’s essential companies understand and adhere to every part of the regulation.
As with any regulatory change, it will take time for preparers to fully understand the new requirements and get their reporting right. Whilst they do, mistakes are inevitable; as we’re seeing in the first wave of ESEF filings.
But the good news is, those companies who have taken the leap and filed in ESEF already are giving fellow firms the chance to learn from and avoid their mistakes. Already, we can identify some of the most common errors being made when filing in ESEF for the first time, and the mistakes that are being made repeatedly, by preparers from different organisations.
Tagging errors are amongst the most common mistakes being made. Every disclosure in an ESEF report needs a tag attaching to it which most closely represents the meaning of that data. Therefore, it's essential the most representative tag is always used. And because accurate tagging is a fundamental part of ESEF reporting, it’s essential firms avoid these easy-to-make errors.
Tagging errors can be down to carelessness, misunderstanding or because preparers are under pressure and trying to save time. Whatever the reason, though, incorrect tagging undermines the quality and accuracy of the report.
Generally, tagging errors fall under two categories: choosing the wrong tag or creating a new extension when a tag already exists. Here are some of the most common tagging errors…
Choosing the first potential tagging match
Once tags are created in the taxonomy, they can be easily searched for to attach to data at any time. Some preparers choose the first potential match that comes up in the search, even if a more applicable tag exists. This means a more relevant tag could have been applied than the one chosen.
Not creating a new tag
Sometimes, a search of the taxonomy does not return any applicable tags. In this case, a new extension tag will need to be created, so that data is accurately represented. If preparers don’t create a new tag when one is needed – to save time or for convenience – the accuracy of the data is reduced.
Creating a new tag when it’s not needed
In contrast to the point above, some preparers are creating extension tags when a relevant tag already exists instead of taking the time to search the taxonomy properly. This can lead to duplications, and cause confusion for other preparers over which tags to use. New extension tags should only be created when a proper search of the taxonomy doesn’t return applicable tags.
Not understanding anchoring
Extension tags have to be linked to a standard element in the ESEF taxonomy by what is known as a wide anchor. This is mandatory to comply with ESEF. Including this information lets regulators compare the data more easily. Some preparers don’t know when to use a wide anchor and are confused between wide anchoring and narrow anchoring. When a preparer does know that a wide anchor must be used, they don’t always choose the right one. It’s important that preparers understand the rules about anchoring. You can find more information around anchoring requirements here.
How to avoid tagging errors
The best way to ensure the quality and compliance of your ESEF report is to keep control of tagging and make sure preparers fully understand the tagging process - not only the 'how' but the 'why'. Companies can achieve this by working with consultants who can offer expert guidance on the tagging process, and by using solutions like Invoke ESEF which is designed to help you retain control of your tagging and comply fully with ESEF. Our ESEF offering covers both guidance and the practical solution needed to get ESEF reporting right. Find out more about ESEF and Invoke ESEF here.