The power of benchmarking ESEF data for auditors and regulators

Auditors and regulators have had to adapt to European Single Electronic Format (ESEF) reality to fulfill their crucial roles of control and oversight. Among the practices available to help them make strides in their mission to ensure data quality and compliance: ESEF data benchmarking. Let's see how with Lens by Corporatings.

Alexandre Prat-Fourcade

Alexandre Prat-Fourcade

October 5, 2023
6 min read
The power of benchmarking ESEF data for auditors and regulators

Auditor and regulator control is key to quality ESEF reports

With the rise of digitalised financial disclosures, both auditors and regulators play a paramount role in ensuring the accuracy and reliability of financial information published by listed companies.

Auditors play a critical role in independently verifying financial and non-financial information, ensuring it aligns with applicable standards. Their audits are key to securing the quality of ESEF reporting, both by checking that the electronic statements accurately depict the financial situation of the issuer, and ensuring compliance with ESEF presentation and tagging standards. Auditors subsequently communicate their opinions on the quality of the audited reports. As a result, their opinions have a substantial impact on stakeholder trust and the credibility of the company.

Similarly, regulators are instrumental in establishing and enforcing the rules and technical standards for ESEF reporting. They collaborate with other local regulators and the European Securities and Markets Authority (ESMA) to develop regulations regarding presentation, tagging, and structure. Regulators also monitor and enforce compliance, provide guidance and support during the testing phase, and drive continuous improvements in standards. Their role is pivotal in ensuring that listed companies adhere to electronic filing rules, enhancing transparency, and maintaining the quality of financial data available to investors.

Through their respective control capacities, auditors and regulators are thus mainstays of quality ESEF communications.

Ensuring compliance: technical and accounting controls are linked

The tagging of financial statements in iXBRL format, necessitates a review by both auditors and regulators. As they previously did with traditional paper or PDF statements, they aim to provide reasonable assurance over electronic statements, which are subsequently made accessible to the entire market, including investors. However, the differences in formats challenge the traditional audit and control methods previously developed for PDF formats.

Auditors are now responsible for conducting checks within the iXBRL data. Subsequently, regulators receive and validate (or invalidate) the electronic publication, in compliance with regulations and filing deadlines.

While numbers can be cross-checked, ensuring that labels align perfectly with the concepts used, the issuer's intent, and its accounting situation can be challenging. Between accounting, financial and technical complexity, even with a deep understanding of the taxonomy, it is essential to examine how other companies publish in order to compare publications, learn about good and bad practices, and detect exceptional practices.

The quest for best practices: benchmarking ESEF data with Corporatings

Benchmarking ESEF data is essential for regulators and auditors to distinguish between common and uncommon practices. As a reminder, iXBRL reporting uses tagging to link each information element to the corresponding accounting concept. In order to know if an element is tagged with significantly different tags from one company to another, users can benchmark ESEF data and compare tagging practices within a sector, a country, etc.  

Benchmarking data is thus extremely useful for ensuring compliance and data quality while saving valuable time. With a single click, auditors and regulators can swiftly spot areas in need of audit or control reinforcement!

Corporatings provides powerful tools for this purpose, tailored to the type of information you wish to benchmark:

- Corporatings’ XBRL Filings Benchmark feature  

This feature allows users to review how a specific element was tagged by each issuer. In the example below, we can see that the SEVERFIELD PLC company filed the Share Of Profit Loss Of Associates and Joint Ventures (using Equity Method) under “Profit/Loss From Operating Activities” like 26% of issuers only (see the “Relation Frequency” column).

By analysing the data, auditors and regulatorscan also quickly identify outliers, and thus know where they should focus their efforts. They can do so by searching for unusual tagging: in the example below, we are looking for issuers who filed Research & Development Expenses in an unusual category by setting the Relation frequency filter at a 0-8% level. The results show that only 1% of issuers, such as OXFORD CANNABINOID, filed R&D Expenses under the “GrossProfit” tag.

- Corporatings' Benchmark Mapping View

This tool enables users to examine which tag is commonly used for a specific element. In the example below, we searched for Umsatzerlöse (“revenue” in German), and we can see that, quite logically, the most commonly used tag is “Revenue”. This insight aids in understanding common industry practices, enhancing audit efficiency.

Conversely, users can try to understand which element is usually mapped with a specific tag. For instance, you may want to know which element is usually mapped with the “Revenue” tag among German issuers. Unsurprisingly, the element most commonly mapped with this tag is Umsatzerlöse.

- Corporatings' Benchmark Human View

This feature aids in analysing narrative elements, such as mentions of "climate" in asset impairment notes. The proprietary relevance score from Corporatings helps users identify companies that most frequently discuss this specific topic, and shows the notes where the topic was mentioned.

LENS by Corporatings: benchmark your way to more efficient controls!

In this rapidly evolving landscape of digitalised financial reporting, staying ahead of regulatory trends is crucial. Just like all financial professionals, auditors and regulators must adapt, and Corporatings' tools can help facilitate this adaptation by ensuring data quality, compliance, and benchmarking efficiency.

Request a demo today and access to Lens by Corporatings to enhance your control and oversight capabilities!

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Alexandre Prat-Fourcade
Alexandre Prat-Fourcade
Cofounder & CEO