Challenges Faced With ESEF Text Block Tagging
The ESMA ESEF mandate has been implemented in phases. Phase 1 of the mandate required all companies with ESEF reporting obligations to tag their primary financial statements according to the ESEF 2020 or 2021 taxonomy. In Phase 2, companies with a financial year starting on or after 1st January 2022 must tag the notes to their annual financial statements as a block tag apart from tagging the primary financial statements. With an increase in tagging requirements, phase 2 is more complex than the first phase. Filers or issuers could face certain challenges with ESEF text block tagging in phase 2 of the mandate. Read on to find out more about these challenges.
ESEF Text Block Tagging Challenges
The challenges faced with ESEF text block tagging include the following:-
1. Readiness of the tagging solution: The filing company should ensure that their tagging solution is capable of handling the additional requirements related to tagging as notified by the regulator for Phase 2. These additional requirements would include the following:-
- Nested tagging: In case of a disclosure corresponding to more than one element of different granularity (with narrower and wider elements), preparers should use each of them and multi-tag the information to the extent that corresponds with the underlying accounting meaning of the information.
- Multi-tagging: If the content of the disclosure refers to more than one existing taxonomy element, the issuer must use each applicable text block and multi-tag the information to define a single text block.
- Continuation tagging: It is used when the content for any text block tag is not present together, i.e., the information to be tagged is placed in various places in the document.
- Exclude tagging: The issuer can select a particular text from the document and mark it excluded from the text block tagging.
2. Readiness of the review software: It is the responsibility of the issuer to file a high-quality-tagged output with ESMA. This can be achieved through an effective review software. Selecting a software that makes the review process easier can take time and effort. The software should be capable of providing the review of continuation, nested, and multi-tagging if present in the iXBRL output. Moreover, it should be able to provide a comprehensive validation report that includes the latest ESMA rules.
3. Time-consuming process: As opposed to Phase 1 of ESEF reporting, Phase 2 is more time-intensive for the taxonomy element selection, tagging and review process. While Phase 1 covered only the annual financial statements comprising 5-7 pages, the notes in Phase 2 cover more than 100 pages.
4. Identification of elements: Another challenge in the ESEF text block tagging process is identifying elements from the latest taxonomy that corresponds to the disclosures in the annual financial statements.
5. Defining the granularity of block tagging: Earlier, there was confusion about whether to tag a single cell, column, or row with text block tags if they correspond to an element in the taxonomy. ESMA has clarified that the lowest level of granularity to consider for text blocks is the entire table. The elements should be applied to the complete table instead of single cells, columns, or rows. Therefore, the issuer must be aware of the granularity process.
How Can You Avoid These Challenges in ESEF Text Block Tagging?
By hiring an experienced and knowledgeable in-house team! However, if creating an in-house team seems overwhelming, you can outsource your ESEF requirements to a trusted vendor like DataTracks. With an experience of more than 17 years, the professionals at the company are well-equipped to create error-free compliance reports. Moreover, DataTracks has prior experience with text block tagging for other regulators. So what are you waiting for? Get in touch with an expert @ +31202253702 or email firstname.lastname@example.org.