Two years ago (March 2017, blog post #2, to be exact) I posed a challenge to our tech company colleagues: please find a technical solution to the potentially fraught and complex question of having to file taggable annual reports from 2020.
A bit of background in case you’ve forgotten – a new regulation is coming into force for all listed companies (across Europe) that they must publish their annual reports for year ends from 1 January 2020 in html with financial information published in a taggable format, namely XBRL. It’s the practical consequence 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. And the powers that be chose html/XBRL as the better option to ‘facilitate accessibility, analysis and comparability of annual financial reports’ (by machine readers, that is – let’s not go there). For the first two years of the regulations, only the financial statements need to be published in XBRL, and from 2022, the notes as well. The regulation was published in the Official Journal of the European Union on 29th May this year, which means it officially comes into force on 18th June. And, since the UK is still part of the EU… (OK, I won’t go there either. But honestly? We’d probably have complied with it anyway even if we had left by now.)
What does it mean in practice?
Leaving aside political considerations, the real challenge was this: currently the popular format for publishing the annual report is a pdf, but you can’t tag a pdf. So what would this regulation mean in practice? No one seemed to know, and I had to confess to ignorance myself, along with a massive sigh of relief a couple of months ago when I received an invitation to a seminar on the implications of ESEF from Arkk Solutions. Further confessions – I’d never heard of Arkk and I was a little sceptical as to whether they really would give us all the answers, but I was pleased that at least someone was trying to. And, they’d picked the Ivy Market Grill in Covent Garden as their venue, so how could I possibly refuse?
The designed pdf lives to fight another day
I’m sure you’re all dying to hear the conclusions – well, the biggest one for me was that it’s not all over for the properly designed pdf which succeeds in telling a story because it’s actually palatable to a human reader (don’t forget the FRC wants us to tell a story). From what I can gather from the tech whizzos at Arkk, the simplest way of meeting the new requirement without changing your entire reporting process is this: take the pdf, turn it into a Word document, and tag and publish that alongside the designed pdf. It adds a stage into the process, but it’s not too onerous – and after all, many companies get a Word doc version anyway for ease of use the following year.
Think of it like the simplified Companies House version. It’s just another version required for a different form of filing. (Another aside – it seems that Co House may consult on ESEF and accept the ESEF in place of its existing filing, but that’s TBC.) You could of course just produce a Word version of the annual report and tag that without bothering to design it at all – but if you still want humans to read it as well as machines, then I wouldn’t advise it. I saw the demo. Not an easy read, dear me no.
Think of producing the ESEF like producing the print version – please
Are there any drawbacks to converting to Word then tagging? Aside from the obvious one of adding another step into the AR process, and producing a version that no human being would ever want to read, then no, not really. But then the whole point of ESEF is that machines – not humans – can read the annual report and compare data with any other listed company. So it kind of makes sense to produce two versions: one for the human reader, one for the machine reader. (There was an amusing moment when the question of whether any of this is actually of any use to anyone was raised by our splendid colleague from Emperor, Leon Milligan, who can always be relied on to get to the heart of any subject! The jury will be out for some time, I fear.)
However, if you’re one of those brave folks who publish the annual report on the day of the results, there may be a problem. If the ESEF version has to be filed on the same day as the pdf annual report, then it becomes a logistical impossibility. Think about it – if you have to sign off the designed pdf, then convert it to a Word doc, then do the tagging, then check and assure it, with the best will in the world you’re talking about days if not a week. Just like producing the printed version in fact. So, if any regulatory people are reading this – I implore you: for the sanity of everyone involved in producing annual reports, please line the publication date requirements up with the print date, not the online date. (Perhaps Leon could go and talk to them?)
Anything else we need to know?
If you’re wondering about whether tagging is going to go beyond the financials, apparently sense has prevailed. It seems that tagging the narrative strategic report will be as complex as this: one tag on the whole strategic report that says ‘this is the strategic report’ or words to that effect. So that’s alright then (as long as they don’t change their minds, of course).
Otherwise, many questions were raised in this most excellent of seminars, not least about the role of auditing/assurance in tagging; whether the SEC, HMRC and the EU might somehow co-ordinate all this into one filing requirement (unlikely); and what’s actually going to happen in various Brexit scenarios. But there weren’t any clear answers – and this blog is long enough already.
To the wonderful chaps at Arkk – thank you very much indeed for an almost perfect solution. Now, if you – or any other of our tech colleagues – could just find a way of tagging the pdf and not bothering with the Word conversion bit, then life would be beautiful indeed. Any takers?