Both the ‘European Securities and Markets Authority’ (ESMA) and XBRL Europe’s ‘Best Practices Task Force’ (BPTF) presented findings on the approach to ESEF block tagging to date. They explored 2 key improvements that could be made in the future, as I have detailed below.
Last year ESMA released their annual update to the ESEF Reporting Manual which saw the addition of some guidance on how to approach block tagging. Many from the XBRL community were surprised by the approach ESMA took, which involved multi-layer tagging to an absurd degree of granularity. The ESMA guidance stated that if information within the notes can represent more than one tagging element of different granularities, then preparers should multi-tag this information with all the relevant tags. In our experience, we have tagged some information with as many as 27 iXBRL tags.
The ESEF ‘Regulatory Technical Standard’ (RTS) contains a set of 244 mandatory tags that relate to tagging of the notes. These mandatory tags must be used if there is information reported within the Policies and Notes that represent one of the tags. With both the multi-layer tagging guidance and the extensive number of mandatories, it has made the preparation of the digital report increasingly complex, resource heavy and very time consuming, within an already extremely time-pressured period.
ESMA stated that their block tagging approach has raised concerns with preparers, software vendors and auditors alike. One of the many groups who have raised concerns are the BPTF. The BPTF is a subgroup of the XBRL Europe association, and aims to extend best practice initiatives from XBRL International, and apply it to ESEF.
The BPTF often publish guidance on creating and submitting digital reports, and tagging data for submissions. The BPTF made a few suggestions on how ESMA could change their approach to block tagging. These suggestions include adding a hierarchy to the taxonomy and reducing the number of mandatory tags.
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1. Hierarchy
The BPTF believe it would be of great benefit to ESEF preparers, if ESMA were to add a hierarchal presentation to the note tags. This would be in a similar way to how the primary financial statement tags are presented within the ESEF taxonomy. The lack of hierarchy results in many different interpretations from preparers and auditors and decreases consistency. By structuring the elements into hierarchies, it would help preparers and data users in their understanding of disclosures.
Due to the absence of specific guidance on the layered block tags, XBRL France organised a working group made up of issuers, auditors, users and software providers. They created their own hierarchy which was shared with the BPTF. Of course this proposed hierarchy is not official, but it is a good example for the ‘International Financial Reporting Standards’ (IFRS) foundation to see how a taxonomy hierarchy could work. As ESMA use the IFRS taxonomy to build the basis of the ESEF taxonomy, we could then see a hierarchy being incorporated into this too.
2. Mandatories
The BPTF are also encouraging ESMA to reduce the number of mandatory text block tags. There are a number of mandatory tags that are very similar to each other and do not add any additional information. A significant amount are not relevant to most companies and are therefore rarely used. Some tags are also questionable, for example the tag ‘Disclosure of interim financial reporting [text block]’. ESEF is required for annual reports only and so this mandatory tag will never be needed. By reducing the number of mandatories, this will make the job of a preparer easier, as well as increase consistency and help comparability.
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Unfortunately, ESMA have announced that it will be postponing the amendment of the ESEF RTS this year, until 2024. This means we will continue to use the ESEF 2022 taxonomy under the rules of the current RTS and its existing list of mandatory block tags. ESMA have stated that they plan to revise its approach to block tagging in the next RTS, as well as incorporating the European Sustainability Reporting Standards XBRL taxonomy.
Although there will be no change in the RTS, the ESEF Reporting Manual will still be updated this year (this is expected to be released before Autumn 2023). As always there will be changes to current guidance and amendments to new guidance too. We will have to be patient as the amount of change to occur to block tagging is still vague.
It is imperative that ESMA provide precise information about what is expected from text block tagging of the notes. It is great that they are willing to accept feedback and suggestions for the block tagging approach. Hopefully we will see more guidance, and some of the BPTF suggestions implemented in the future.