Annual reports are mainly produced and published in print and PDF format in Germany and many other European countries so far. Apart from the fact that the tedious process of preparing financial reports requires a number of manual activities in many accounts departments, investors and analysts also have to process the reports manually. The annual financial statements have to be manually copied to rating systems, since PDF is not a machine-readable structured format. Individual design, absence of uniform structure, and the so-called "entity specific disclosures" (individual positions) make the automatic reading of the financial reports and profit and loss statements very difficult, not to mention the extensive disclosures.
The XBRL format makes it possible to structure the annual reports and make them machine-readable. For example, revenues receive the unique technical name ifrs: Revenue, also called "tag". It marks the corresponding number in the annual financial report like a barcode. The so-called XBRL taxonomies provide "templates" which are based on different accounting standards, e.g. IFRS. The IFRS taxonomy is thus something like a large generic chart of accounts for all possible IFRS items.
The ESMA announced that starting in 2020, public companies that prepare consolidated IFRS financial statements will provide them in the European Single Electronic Format: Inline XBRL. The ESMA has created a ESEF Taxonomy which essentially corresponds to the IFRS taxonomy. Thus the financial reports cannot be published in the printed form only anymore. All listed companies in Germany must provide their annual reports to the Bundesanzeiger in XBRL. A direct transmission to the ESMA is not planned, the national supervisory authorities and business register remain compulsory. The ESMA estimates that around 5300 corporations are affected throughout Europe.
The ESMA has also published details on the planned implementation. The so-called Inline XBRL (also iXBRL) format will be used – XBRL embedded in HTML. The advantage of this format is that an XBRL report can be opened with any web browser. In fact, not only XBRL will be an obligation, but also HTML annual report that corresponds an “online report”, which is published by some companies. A very rudimentary example of an iXBRL IFRS report can be found here.
Not to overload the companies at this initial stage, the ESMA requires only the “main financial statements” such as the balance sheet, profit and loss statement, cashflow and statement of changes in equity. Notes to the financial statements can be tagged with a single XBRL tags, which means that not every figure has to be identified explicitly.
The problem with “Entity Specific Disclosures” is to be solved with the so-called taxonomy extensions. If the position is not available in the taxonomy (e.g. segment-specific turnover) a new position must be added (an extension). In the US, where listed companies have been required to report XBRL to the SEC for several years, this process has led to considerable expenses and protests. In contrast to the intended implementation of the ESMA, the appendices must also be reported as XBRL in the US. This has resulted in a lot of criticism of the SEC’s “interactive data” project and low data quality of the XBRL files. As a consequence, the companies classified too many positions as "extensions". However, such taxonomy extensions are no longer standardised and therefore not available for machine analysis. The XBRL reports thus lose their value for analysts and investors.
The ESMA is aware of this problem and offers to assign positions to the semantically related positions by “anchoring” (in addition to “Block Tagging”). In the example above, the segment-specific turnover positions would be an extension that is semantically linked to the sales.
The exact rules, the so-called Filing Rules, have to be specified by the ESMA. Also the issues whether and how the XBRL report must be examined by an auditing company are still open. The fact that the balance sheets have to be computationally correct is, however, already fixed - XBRL allows no rounding differences due to the "Calculation Linkbase" hierarchy in the taxonomy – the corresponding XBRL reports are marked as non-valid.
The ESMA is now looking for volunteers who would like to test the XBRL creation process, in order to gain new experiences and improvement ideas. Companies can apply for this field test on the ESMA website.
In addition to the consequences of "external" changes in financial reporting, the new ESMA rule also has serious consequences for the financial reporting process. Theoretically, accounting can ignore the new requirements and have the traditionally prepared report converted by a service provider. However, this practice is error-prone for the following reasons: arithmetic errors are detected at a very late stage and the mapping of the positions to the IFRS taxonomy and the taxonomy extension can actually be done by the same experts who create the balance sheet. In the US, 10% of the XBRL annual reports are not valid and have poor data quality. Apart from this, such services result in considerable financial expenditure.
A better and more reliable method is to integrate XBRL in the financial reporting process. To do so, software solutions can be used that maps the accounts to positions from the accounting or consolidation system directly to the balance sheet items and XBRL taxonomy positions. A Disclosure Management System, such as AMANA's SmartNotes, provides functions that enable you to update the figures in the report at the push of a button. XBRL Mapping and Tagging is an integral part of this process - if a balance sheet item is assigned to certain positions and accounts, the corresponding IFRS item can be selected directly from the taxonomy with just one mouse click. The mapping generated in this way must be created only once and then can be reused for all subsequent reports.
Word / PDF, HTML or XBRL reports can be generated at the push of a button In SmartNotes. No conversion or manual transfer of the data into the respective format is necessary, which eliminates errors and does not require proofreading. If desired, the SmartNotes report can also be printed in all formats with a ready-for-print CI design, which again saves time and money.
SmartNotes is already used by more than 120 companies, including 50% of DAX groups like Deutsche Bank, BAYER and Allianz, to optimise the "last-mile" process - for our SmartNotes customers, XBRL is not a big challenge.
You can also find out more about the ESEF and the possibilities of the XBRL tagging in SmartNotes on December 12th and 14th at 9:30 am. Philipp Stampfuß, Richard Bössen and Björn Bielesch are available to answer all your questions.
For more information on SmartNotes click here.
The webinars will be held by Richard Bössen and Björn Bielesch.
ESEF 2020 and iXBRL - Easy Tagging Process using SmartNotes (EN) - 12.12.2018 (Wednesday), 9:30 - 11:30 am.
ESEF 2020 und iXBRL - Tagging mit SmartNotes, einfach umgesetzt (DE) - 12.12.2018 (Wednesday), 1:30 - 3:30 pm.
The AMANA XBRL Tagger - a simple tagging solution for ESEF 2020 and iXBRL (EN) - 14.12.2018 (Friday), 9:30 - 11:30 am.
Der AMANA XBRL Tagger - eine einfache Tagging Lösung für ESEF 2020 und iXBRL (DE) - 14.12.2018 (Friday), 1:30 - 3:30 pm.
The webinar is free of charge.
Register now --> LINK
Do not hesitate to ask us in case of questions: @ info[at]amana.de or T +49 201 94622 800.
AMANA uses "WebEx". The video content will be shared via web, the audio content will be shared via phone. Attendees may ask questions und it would be even possible the shares their screen if needed.
Changed on 15.11.2018, information supplemented/corrected.