Leveraging ESEF data for better business
The European Single Electronic Format (ESEF) has changed the way financial reporting is conducted. Since its introduction, there has been a significant shift in the financial reporting landscape, emphasising the importance of standardised digital formats for companies’ financial statements and ESEF data.
ESEF’s primary goals include promoting transparency, enabling better analysis for stakeholders, and fostering healthy competition. However, achieving high-quality ESEF data presents its own set of challenges for companies to overcome.
RELATED: ESEF reporting explained: Format, Block Tagging & Deadline
Original purpose of the European Single Electronic Format
ESEF was introduced to address several key objectives that are vital for businesses in today’s global economy.
Financing needs for companies
One of the primary objectives of ESEF reporting is to address the financing needs of companies. By implementing a standardised electronic format for financial reporting, ESEF streamlines the process of preparing and sharing financial information.
This improvement in accessibility and comparability enables companies to meet their financing needs more efficiently, making it easier for investors and stakeholders to make well-informed decisions.
Improving analysis for potential investors
ESEF plays a crucial role in facilitating comprehensive analysis for potential investors. By providing structured data that can be easily extracted, analysed, and compared, ESEF allows investors and end users to evaluate companies more effectively.
This standardised approach enhances the investment decision-making process and promotes greater confidence in financial markets.
International competition
ESEF contributes to fostering international competition by creating a level playing field for companies across Europe. With standardised financial reporting, end users can confidently compare companies from different industries and countries. This not only encourages fair competition but also attracts investments.
The importance of ESEF data quality
To ensure the effectiveness of ESEF, maintaining high-quality data is crucial. Let’s explore the key aspects of data quality within ESEF:
1. Comparability
High-quality ESEF data enables accurate benchmarking and industry analysis by ensuring comparability between companies. Consistent application of accounting principles and accurate tagging of financial information enhance the reliability of comparative assessments performed by end users.
2. Accessibility
ESEF data, when accurately prepared, is readily accessible to investors, regulators, and analysts. This accessibility streamlines the flow of information, reduces the time required for data analysis, and empowers stakeholders to make prompt, well-informed decisions.
3. Reliability
Reliable ESEF data builds trust among companies’ investors and stakeholders. By adhering to the established reporting standards and ensuring accuracy in financial information, companies can enhance their credibility and reputation.
This, on the other hand, can have a positive impact on their market value and access to capital.
The challenges of ensuring a high level of ESEF data quality
Challenge 1: Picking the right data metric
Accurately mapping financial data to the appropriate ESEF taxonomy element can be challenging. The ESEF taxonomy is essentially a list of more than 4000 standard elements for each line of the primary financial statements. Issuers must determine whether the meaning of each line item of their statements matches one of these elements, and if not, they must create a custom one.
To overcome this challenge, a deep understanding of the taxonomy as well as diligent data mapping efforts, are vital. Selecting the right metrics and ensuring that the financial statements align with the required reporting elements is crucial to high quality ESEF data.
Overcoming the challenge, while maintaining high quality ESEF data
When producing one reliable source of truth in the form of ESEF, consistency is key!
Keeping consistency in the mappings, increases the level of transparency and comparability across industries and countries. This practice ensures that the data is not only compliant but also valuable and easy to consume for analysts and investors.
At ParsePort, our ability to reuse information enables us to map reports in a consistent way. We centralise our mappings according to taxonomic logic, best practices and shared knowledge with auditors and issuers. This enables us to efficiently monitor taxonomy updates and correctly apply changes if needed, while maintaining consistent and comparable ESEF data.
There are few things to be aware of when picking the right metric for your report:
- Extensions can degrade the ESEF data quality if misused or used excessively.
- Extensions must respect a clear syntax and be finely anchored to avoid logical overlaps with other taxonomy elements used in the report.
- Mappings must be up to date with the latest taxonomies.
Challenge 2: Reporting the right value
Companies must accurately report the values in their financial statements to maintain data integrity. Ensuring consistency and correctness across different reporting periods, currencies, units of measurement, and value signs is crucial. Proper validation processes and robust internal controls can help address this challenge effectively.
What caused issuers to improve their ESEF data in their 2022 reports
The Group Consolidation Director from Clariane, Malek Lasram, shares their experience:
And from the auditors’ perspective, Boris Damon, the Director of Capital Markets and Accounting Advisory Services from PwC France and Maghreb shares:
Indeed, increased knowledge and improved functionalities in ESEF tools have been driving forces behind this year’s more consistent and overall improved quality of ESEF reports.
Challenge 3: Tagging the notes to the financial statements
Annual financial reports often include important information in the form of footnotes and disclosures to the financial statements.
Following latest ESEF regulations, annual financial reports with fiscal years starting on January 1st, 2023 or later, have to have the notes tagged with XBRL tags from the ESEF base taxonomy. Properly tagging these notes and ensuring their alignment with the corresponding elements in the ESEF taxonomy can be complex.
Louis Vilain, Vantiva’s Head of Group Accounting, shares their experience with this task being:
Block tagging the notes to the financial statements can be a challenging and time consuming task, the results of which are not very usable by issuers or end users currently.
Cofounder & Financial Data Expert at Corporatings, Marc Houillier takes a stance in favor of the usability of notes tagging:
Careful attention to detail and adherence to tagging guidelines are essential practices to overcome this challenge.
At ParsePort, we approach this challenge by working pragmatically with the current taxonomy and newly established best practices in mind. We apply all applicable main concepts and multi-tag when needed. We also accommodate the needs of extensions and higher granularity, while still maintaining coherence and simplicity in our approach.
Learn more on how to simplify your block tagging process with our Ultimate Block Note Tagging Guide for ESEF Reporting.
Best practises to leverage your ESEF data and gain advantage
By understanding the original purpose of ESEF, recognising the importance of data quality, and overcoming the challenges associated with accurate reporting, you can leverage your ESEF data to your advantage.
Here are our recommendations on how to leverage your ESEF data effectively and gain a competitive edge:
1. Implement an automated ESEF compliance solution
Invest in a reliable and comprehensive ESEF compliance solution that can streamline your ESEF reporting process. Primary mapping and sequential year-to-year re-mapping can be complex and time-consuming, especially when an updated taxonomy is released. To ensure a high quality level of your ESEF report, make sure your ESEF reporting provider supports timely taxonomy updates, and allows for file comparison and validation. Check out our XBRL Converter and ESEF solutions that come with automatic taxonomy updates and re-mapping here.
2. Enforce internal checks to ensure data accuracy
Establish robust internal controls to verify the accuracy and consistency of your financial data. Implement regular reconciliation processes, perform data validation checks, and conduct periodic audits to maintain data integrity and ensure compliance with ESEF standards. In term’s of your ESEF reporting, thoroughly validating your data is absolutely vital. See our XBRL Inspector tool to validate your latest ESEF report.
3. Utilise data analytics to gain insights
Utilise advanced data analytics tools to analyse the structured data provided by ESEF and gain valuable insights from other financial reports. Extract key metrics, identify trends, and perform comparative analysis to make data-driven business decisions and identify opportunities for growth. Find more information how you can do that using Corporating’s solution.
