In December, the European Securities and Markets Authority (ESMA) published a feedback statement, providing an overview of comments received in response to its recent consultation on proposed new digital formats for EU issuers' financial reporting and setting out its proposed approach to creating a single digital format which issuers will use to report their company information.
ESMA concluded that inline XBRL (iXBRL) is the most suitable technology for issuers to use to report their annual financial reports in a single electronic format, an EU requirement that will come into effect on 1 January 2020. The US Securities and Exchange Commission (SEC) has announced that it will accept iXBRL filings, for qualifying entities, from 2020.
The ESMA consultation relates to a Transparency Directive provision that will require issuers listed on European regulated markets to prepare their annual financial reports in an electronic format, with the objectives of making submission easier for issuers and facilitating accessibility, analysis and comparability for investors and regulators.
iXBRL is a format that allows filers to embed XBRL data directly into a HyperText Markup Language (HTML) document that can be read as a paper report or digitally consumed by IT systems, allowing for data comparability among other benefits. iXBRL is widely used globally, it is used by Companies House in the UK and is the same format currently required by the UK tax authorities for corporation tax filing.
In 2016, ICAEW’s Financial Reporting Faculty responded to the original consultation, Regulatory Technical Standards on the European Single Electronic Format (ESEF) and a copy of the response can be viewed here.
In the response, ICAEW supported moves to develop a technical standard for the development of an ESEF. The requirement for annual reports of EU listed companies to be prepared using a single electronic format is an important milestone in the journey towards a more uniformly applied and coherent digital reporting framework for corporate reporting. It has the potential to bring about radical improvements in transparency, comparability and in particular the accessibility and usability of published financial information, which should bring capital market benefits that should not be underestimated.
ICAEW is pleased to note that many of our recommendations were accepted, primarily that UK experience has shown that the objectives specified by ESMA will be met most effectively by opting for iXBRL. iXBRL reports are - critically - human-readable, based on HTML, and can contain unstructured data. This flexibility and the cost benefits this brings is advantageous, especially given the flexibility inherent in IFRS financial reporting.
The main conclusions in ESMA’s feedback statement, which are still only proposals at this stage, are:
• Issuers should prepare their annual financial reports in human readable format, which can be read by standard browsers without the need for specialised tools;• Only where annual financial reports contain IFRS consolidated financial statements must issuers label this information using XBRL, which is machine-readable. The XBRL data is embedded directly into the documentation through the iXBRL format. ESMA may extend mandatory labelling of information using XBRL to other parts of the annual financial report or to financial statements prepared under third country GAAP at a later stage; and• The IFRS Foundation’s taxonomy should be used to transfer financial information into structured data for the electronic reporting of IFRS financial statements.
Of course, the impact of Brexit may change the outcome for UK companies. I understand that these requirements may in practice apply in the UK because they implement an aspect of the updated Transparency Directive, which has already been transposed into UK law. More certain is a digital future; filing under iXBRL is, as mentioned, gaining traction globally and is likely to influence UK policy makers and their consideration of future technologies for reporting purposes.