Structured reporting: iXBRL for UK listed company consolidated financial statements
The FCA has implemented rules requiring UK listed companies to publish their annual reports in a machine-readable format, which has been implemented in other countries as the European Single Electronic Format (ESEF). The FCA rule references the Transparency Directive, in which this initiative originated. Structured reporting is a hot topic for preparers of annual reports.
What’s on your mind?
- What will change?
- Where do we start?
- Will existing iXBRL tagging arrangements for HMRC provide a solution?
- Will the auditors be checking the new tagging?
- What are other companies doing?
- Does this apply in the UK?
What will change?
To comply with the structured reporting rules, a new version of the annual report, prepared in XHTML format and tagged with machine-readable data will be prepared by listed companies subject to the FCA’s Disclosure Guidance and Transparency Rules (DTR 4.1) and/or the amended Transparency Directive. 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 rules and consider how structured reporting 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 2020 annual report. Software vendors are speaking with current and prospective clients about how new systems and processes addressing iXBRL can be implemented.
Does this apply in the UK?
The FCA is implementing the requirement in the UK and has added DTR 4.1.14 to the Handbook. In November 2021, the FRC and FCA issued a joint letter to CEOs, reminding issuers of their obligations and highlighting expectations on quality. The Department for Business, Energy & Industrial Strategy (BEIS) has published The UK government’s position on the effect of the ESEF Regulation. The digitisation of financial statements is a global trend and we are not surprised at the level of interest structured reporting is generating in the UK.
Our point of view
Having freely-available, machine-readable access to the consolidated financial statements of every UK and EU-regulated listed company will make it easier for regulators and other stakeholders to manipulate the data and compare across a peer group - giving users of the information new possibilities.
Ultimately, structured reporting is the application of a technical format. It doesn’t prompt new information to be produced, it’s about making existing information available in both human-readable and machine-readable forms. So, it seems reasonable to view this as, primarily, a regulatory compliance exercise.
The preparation of annual reports can be costly and time-consuming. Some will use ESEF as a springboard to cost-savings and better processes, whilst others will delay engaging with the new requirement, take differing paths and achieve a range of cost outcomes.
What are the next steps
Right now, this will mean getting to grips with the emerging regulation - tasking someone in the organisation to assess the requirement, present the options and devise a plan. Doing it well can involve training on the requirements, understanding how existing processes work, knowing where judgements will be involved and entering into discussions with current and potential service providers.
Further ahead, this will lead to more cost-effective, high-quality, digital information for users of your consolidated financial statements.
How we can help
Review and recommend
Have you done a dry run? Or filed a structured report in ESEF? Our Review and recommend service can check the quality of your tagging. We form an expectation of appropriate tagging for your disclosures. Then we compare our tags with yours, including any custom tags, and explain what should change. We suggest alternatives, where a different tag might better convey accounting meaning. And we’ll discuss the user-friendly report with you.
ESEF eLearning
We have created two eLearning modules to familiarise you with the ESEF requirements and the nuts and bolts of ESEF tagging. We explain the rules, show examples and provide exercises you can work through, including anchoring and extensions. Follow-up workshops are available as a blended learning opportunity to those who have licensed the training.
ESEF mapping report
Our accountants can map the relevant parts of your consolidated financial statements to tags in the ESEF or UKSEF taxonomy, using the applicable rules. Your tailored mapping report is a blueprint illustrating which tags to choose and where they go, as well as which extensions are necessary and how to anchor them appropriately to the taxonomy. It can guide your tagging decisions, no matter what software solution you choose.
Controls assurance
Producing machine-readable financial statements in an annual report that complies with the new structured reporting rules involves significant effort. We offer vendor selection support and a controls assurance review, including an evaluation of how structured reporting will impact your processes, controls and annual report preparation timeline. You should consider three key areas: people, processes and technology.
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