What will change?
A new version of the annual report, prepared in XHTML format and tagged with machine-readable data will be prepared by listed companies governed by EU rules. New preparation arrangements will be required, new software is involved and new processes and controls will be necessary. Investors and other stakeholders will be able to search the consolidated financial statements using computers as well as the human eye.
Where do we start?
Before making any updates, improvements or changes to current annual report preparation arrangements, the first step is to become familiar with the new requirements and consider how the European Single Electronic Format (ESEF) may affect your company.
Will existing iXBRL tagging arrangements for HMRC provide a solution?
Unfortunately not. There are new rules and taxonomies that require new software. The timeframe for this requirement will be four months after the year end, a much tighter deadline than for HMRC. Any errors will be open to public scrutiny rather than a private matter concerning only HMRC. Tagging consolidated financial statements will be different to existing arrangements.
Will the auditors be checking the new tagging?
In time, we expect that there will be a mandatory role for the auditor, because the FRC has indicated that assurance required by law or regulation would be a permissible service to provide to audit clients. However, the requirements are yet to be developed and communicated.
What are other companies doing?
Companies are learning about the requirement. Some companies are speaking with service providers and advisers about their annual reports. Changes to shorten and simplify the annual report in readiness for the new requirement may be on the agenda. Others are already taking practical steps: preparing a mapping report to guide their tagging choices and/or doing a dry run based on their 2019 annual report. Software vendors are speaking with current and prospective clients about how new systems and processes addressing iXBRL can be implemented.
Does Brexit affect this?
The FCA is implementing the requirement in the UK and has added DTR 4.1.14 to the Handbook. The digitisation of financial statements is a global trend and we are not surprised at the level of interest ESEF is generating in the UK.