2020 seemed a long way off until a couple of weeks ago, when I had an interesting chat with Thomas Toomse-Smith, project director of the Lab team at the Financial Reporting Council. What was supposed to be half an hour ended up being nearly two, as the full implications of new regulations around xhtml reporting – set to come into force in 2020 – started to dawn on me.
What struck me most forcibly of all was, why aren’t we all talking about it? How can something which could have the most far-reaching effects on how we write, design and produce annual reports since the internet was invented not be on everyone’s agenda? Given that so many people don’t seem to have thought much about it, I’d like to pose a few questions about what this regulation might mean, and how we might prepare for it. (I’ll leave aside the question of whether it will actually achieve anything useful in terms of improving reporting – which in my mind is highly doubtful! – since sadly that ship has sailed.)
All annual reports (listed companies excl AIM) to be filed in xhtml from 2020
First – for those as ignorant as I was, let me summarise: a new regulation is due to come into force for all listed companies (across Europe) that they must publish their annual reports for year ends from 1 January 2020 in xhtml. It’s the practical consequences of the EU Transparency Directive, that ‘requires issuers listed on regulated markets to prepare their annual financial reports (AFR) in an ESEF’, or European Single Electronic Format. Why, one might ask, couldn’t this single electronic format be a simple pdf, apparently the preferred format of most companies that took part in the consultation? The fact is, the powers that be have chosen xhtml as the better option to ‘facilitate accessibility, analysis and comparability of annual financial reports’.
What does ‘filing in xhtml’ mean in practice?
Leaving aside the question of whether UK companies will have to adhere to this post Brexit – let’s assume they will, although how nice it would be if they won’t – then the big question is, what does ‘filing in xhtml’ actually mean? The purpose of this regulation is to enable people and computers to search and compare data easily – and to do that they want the full annual report published in html with financial information published in a taggable format, namely XBRL.
For the first two years of the regulations, only the financial statements need be published in XBRL, and from 2022, the notes as well. This should be relatively straightforward given that financial statements are published in a standard format with a standard set of notes anyway. However, while there is no suggestion (yet) of tagging the strategic and governance reports, it hasn’t been ruled out, and, indeed, the full annual report will have to be filed in html. If XBRL is on the agenda for strategic and governance reports, it’ll be a challenge because, of course, how each company interprets reporting regulations and tells its own story through narrative reporting is unique.
Hopefully, these new regulations won’t take us backwards – and make us publish reports as websites. Those who’ve been in the business of corporate reporting for a while will remember when full html reports were all the rage – until web analytics got sophisticated enough to tell us that no-one used them – and we moved to a better world (if not perfect) in which corporate reporting can be a mixture of full details in a printed / pdf format, with highlights and summary information in a reporting hub / summary annual review. (See our previous blog about using each medium to its best advantage.)
Calling on our tech partners for a solution…
If we have to use existing technology there is no getting away from the fact that how we write and produce annual reports will have to change. Our team is currently working on an online only annual review – and the way we write, design and produce it is fundamentally different from the way we write a pdf/printed annual report. And it’s really hard – while the internet has certainly transformed corporate communication for the better, reporting against current regulation is still a linear exercise which doesn’t lend itself easily to the immediacy and brevity of digital.
So, given that 2020 is fast approaching, and a radical overhaul of reporting for a digital age is a long way off, rather than trying to make the way we write and produce annual reports fit the technology, how about making the technology fit the way we write and produce annual reports?
… can we press a button and turn a pdf into perfect xhtml?
Many companies have tried – and so far failed – to achieve the holy grail: press a button and print off a bunch of website pages that look like a beautifully designed document. Let’s think about it the other way round: how about pressing a button to make the beautifully designed document (the pdf which companies want to carry on producing anyway) turn itself seamlessly into an XBRL xhtml file that can meet the 2020 regulations?
Many people already offer to turn your pdf into an html version which is something between a pdf and a website, but those I’ve seen, while at first glance looking beautiful, don’t really seem to add an awful lot that you couldn’t get more easily from printing off and reading the pdf. Or, looking at the investor website. And, as far as I know, we’re some way off the xhtml filing requirements at the touch of a button. Back to the FRC’s Lab team – Thomas tells me that there are some technologies out there that are aiming to do just that, but the jury’s out on whether they can cope with anything more complex than a simple word document.
I think there’s a big opportunity here – after all, what company wouldn’t prefer to carry on producing the annual report as they do currently, and just buy a bit of software that can do the difficult filing thing for them? Tech companies – it’s over to you.
Coming next – First Wednesday of April: Helen Gaffney of Achates, winner of the Falcon Windsor party blog prize draw, commissions us to reflect on the value of the arts to business, as an exciting new development in the Achates Philanthropy Prize which supports first time donors to the arts is announced.