uk issuers - Structured reporting for UK issuers – Obligations & Expectations

Structured reporting for UK issuers – Obligations & Expectations

 

With the breakneck speed at which the digitisation of data is underway globally, the quality of this actionable information becomes the cornerstone of a well-oiled capital market. In a market like the UK that supports structured Annual Financial Reports (AFRs), analysis, accessibility and comparability of financial and non-financial data is far more easily facilitated, provided the quality holds up to an appropriate review.

The Financial Conduct Authority (FCA) and the Financial Reporting Council (FRC) have jointly addressed a letter to issuers with transferable securities trading on a UK regulated market. In their communication, they reiterate the obligation issuers have towards producing usable AFRs while setting some expectations on their quality. They also talk about corrective action that they may take should issuers fall short of these expectations.

So, let’s start with the obligations. What are they?

UK Issuers

Obligations of Issuers

The FCA has employed certain rules under the European Single Electronic Format (ESEF) mandate that requires UK issuers to publish their AFRs in a structured web browser format known as XHTML. They must be filed with the FCA’s National Storage Mechanism (NSM).

An issuer preparing consolidated financial statements using the International Financial Reporting Standards (IFRS) is further required to tag the financial data within their AFR using a digital classification, also called a taxonomy.

In view of the pandemic that affected everyone in early 2020, the FCA delayed the effective date of these requirements in November of 2020. However, it made changes to its systems, allowing issuers to file voluntarily with the NSM in the new format before they came into force mandatorily.

While the whole exercise was deferred by a year, we have finally arrived at the point where mandatory filing will come into force. From the 1st of January 2022, issuers will need to file their AFRs with the NSM for financial years starting on or after the 1st of January 2021.

To ensure that they are submitting the AFRs in the required format and with the appropriate level of quality, issuers will need to devote operational and managerial resources on an ongoing basis for this activity annually.

To check whether and to what extent these requirements apply, issuers will need to review the Disclosure Guidance and Transparency Rules (DTR 4.1) that can be found here.

The FCA specifies the ESEF taxonomy that came into force on the 31st of December 2020 for issuers that produce consolidated financial statements in the UK. In a quarterly consultation paper, the FCA has deliberated on which taxonomy and corresponding version should be made available to issuers to comply with their rules. They are aware that issuers may be using more recent versions of the ESEF taxonomy as used in the EU or even its UK-specific derivative, the UKSEF.

Now that we have a firm grip on the obligations of UK issuers as set out by the FCA and the FRC, let’s look at what their expectations are on quality.

AFR quality expectations

While change is an ongoing part of the world we live in, a transformation in the way corporate reporting is processed can create some very detrimental challenges for issuers who need to comply with them. These hurdles are mainly technological, due in part to the introduction of a new format that is now mandatory for AFR submission. That said, it’s still important for issuers to produce an output that is usable and of satisfactory quality.

While voluntary filings in the past year have proven to be great learning for a large number of issuers that decided to take the plunge early, issuers that will be filing for the very first time next year will need to be wary of a few things. The FRC’s Lab conducted a study reviewing a bunch of tagged filings not just in the UK but in the EU as well where ESEF has already been mandated. Their research discovered some areas where issuers may need to pay special attention in order to avoid issues with their final submissions.

Of special note is the fact that issuers are responsible for all the data drawn up and made publicly available under the DTRs. Both the FRC and the FCA therefore expect issuers to dedicate as much attention and care to their XHTML AFRs as they do to their PDF/printed ones.

They encourage issuers to file voluntarily while still possible to ensure they are familiar with the requirements and the submission process before mandatory obligations come into force.

If quality and usability of the submitted AFRs is not up to the mark, the FRC and FCA may take certain corrective actions.

Remedial actions that may be undertaken

The quality and usability of the structured AFRs will be considered by the FCA and the FRC’s Lab in the first year of mandatory submission. A follow-up of the Lab’s review of best practices is set to be published sometime in 2022. There is mention of further action that may be taken should quality not meet their expectations.

Fin-X Solutions’ SaaS platform IRIS CARBON® facilitates AFR preparation and submission in a highly secure and best-in-class SaaS environment.

ESEF, AFR, NSM, IFRS, UK Issuers, Structured reporting

ESEF, AFR, NSM, IFRS, UK Issuers, Structured reporting

ESEF, AFR, NSM, IFRS, UK Issuers, Structured reporting


esef ixbrl - ESEF iXBRL filings 2020 — A Fin-X Solutions study

ESEF iXBRL filings 2020 — A Fin-X Solutions study

The European Securities and Markets Authority introduced the European Single Electronic Format (ESEF) mandate to improve the way financial disclosures are made by listed companies in the EU and used by various stakeholders such as national regulators and investors.

The Inline XBRL or iXBRL format, in which the companies need to prepare their annual reports, makes corporate disclosures comparable across companies and sectors, while also improving their accessibility and quality.

The question to ask then is if the ESEF iXBRL mandate has made a difference to the quality of reporting by the companies it governs.

Team Fin-X Solutions conducted a study of the 2020 ESEF iXBRL annual reports of 447 companies in the EU and the UK. The study yielded several useful insights, which we will discuss below.

Scope and methodology of the Fin-X Solutions Study

The following image will give you a snapshot of the Fin-X Solutions study.

ESEF iXBRL reporting

Source: Fin-X Solutions internal study

We studied the ESEF iXBRL filings of 447 companies across 13 EU countries and the UK (14 countries in all). The companies belonged to 25 different industries. Over half of them were small caps, 21% were mid-caps, and 13% were large caps.

As many as 225 companies belonged to countries in which filing the 2020 annual reports in iXBRL was mandatory — Austria, the Czech Republic, Germany, and Slovenia — while 222 companies had filed in iXBRL voluntarily.

Our research methodology involved downloading the zip packages constituting each company’s iXBRL submission from the respective country’s Officially Appointed Mechanism and running each filing through our in-house validator IRIS Bushchat®. Two types of validation results were recorded.

We found over 50,000 tagged concepts in the 447 companies’ filings and a little over 8,000 extensions.

A note about tagging and extensions: Tagging involves mapping the disclosures in an annual report to the corresponding concepts in the ESEF taxonomy. Extensions or extension elements are custom tags formed to represent disclosures for which the right-fit concept cannot be found in the ESEF taxonomy. The correct practice is to study the ESEF taxonomy and identify the concepts that pertain to your disclosures. Extensions should be used only when necessary for ESEF reports to be of high quality.

Validation errors and warnings

Our validation checks revealed that only 176 of the filings we studied were totally error-free. The remaining filings threw up 3204 errors and 11609 warnings in all. 

What are errors and warnings?

An error is defined as an issue in an ESEF filing that needs immediate attention. A filing with errors risks being rejected by the OAM if the errors are not rectified. An example of this is a faulty ESEF iXBRL zip package which is not in compliance with the ESEF reporting manual.

A warning is less severe than an error and does not impede submission through the OAM as it may still be considered a valid ESEF filing. Warnings need to be checked and corrected, nonetheless. Rounding errors are an example of this type of issue.

Note: Our analysis was based on the tagging of the 5 primary financial statements by the companies using the ESEF iXBRL standard. Subsequent phases of this mandate will require companies to tag notes and other detailed information which may increase the percentage of errors and warnings in subsequent filings. 

ESEF filing errors — Country-wise distribution

A few observations from the country-wise distribution of ESEF errors:

Over a third of the companies whose filings Fin-X Solutions surveyed were from Germany. 

Among countries with at least 5 ESEF participants, France was found to have the highest proportion of companies with mistakes in their ESEF filings (71%).

Belgium and Slovenia had the lowest proportion of companies with mistakes in their ESEF filings (33%).

ESEF iXBRL reporting

Table 1: Country-wise Distribution of ESEF iXBRL filings

ESEF filing errors — Industry-wise distribution

A total of 25 sectors were part of our study and the table below illustrates how many companies from each sector were studied along with the total number of errors that were found in their AFRs.

ESEF iXBRL reporting

A surprising finding from the study saw the Financial (BFSI) sector come out with the most errors in their ESEF iXBRL filings, followed by the Consumer Cyclical sector in a close second. This may call for special attention as the concepts provided by the ESMA reference taxonomy may not be fully in line with current reporting practices and there may be a need to create custom elements or extensions.

We will now take a brief look at the industry-wise breakdown of the quality of ESEF iXBRL filings from 4 countries, 2 where the ESMA ESEF mandate was made compulsory and 2 where it was voluntary. 

ESEF iXBRL filing errors by German and Slovenian companies (by industry)

As mentioned earlier, it was mandatory for companies in Germany and Slovenia to file their 2020 annual reports in the iXBRL format.

We surveyed 153 companies across 11 sectors in Germany and 9 companies across 7 sectors in Slovenia. The results from these countries are presented below.

ESEF iXBRL reporting

The Consumer Cyclical sector in Germany was found to have the most errors (376) spread across 33 companies followed by the Healthcare (117 errors across 17 companies) and Financial (104 errors across 22 companies) sectors.

In Slovenia, an insurance firm was found to have 85 errors in its ESEF filing. This was followed by a firm in the Wholesale and Retail Trade sector with 7 errors in its ESEF iXBRL report. 

ESEF iXBRL filing errors by companies in the UK and France (by industry)

We surveyed 18 and 55 companies in the UK and France, respectively. Here’s what we found on assessing the quality of their ESEF iXBRL reports: 

ESEF iXBRL reporting

Companies from the Basic Materials sector in the UK had the most errors at 105, spread across 3 companies. This was followed by companies in the Utilities and Chemicals sector with 103 and 98 errors respectively.

In France, the situation wasn’t much different with the Utilities and Basic Materials sectors again featuring in the top 3 with 43 and 26 errors respectively. However, 14 companies in the Industrial sector accounted for 87 errors, making them top this list.

Conclusion

This article is meant to provide the reader with a birds-eye view of the ESEF filing landscape in the EU and the UK and how the quality of these reports has been. Since the mandate is new, it is natural to see many errors and warnings in the reports that have been submitted to the OAMs so far. However, we expect these to reduce substantially in the following years when companies become more comfortable with the regulatory reporting requirements laid down by ESMA.

In a subsequent feature, we will take a deep dive into what kinds of errors and warnings were found in the reports we surveyed and how companies can avoid these in the future.

Looking for ESEF iXBRL filing software?

ESEF iXBRL, ESEF iXBRL filings, iXBRL filings, ESEF, iXBRL, XBRL

ESEF iXBRL, ESEF iXBRL filings, iXBRL filings, ESEF, iXBRL, XBRL

ESEF iXBRL, ESEF iXBRL filings, iXBRL filings, ESEF, iXBRL, XBRL


IFPR Reporting Mandate UK ifpr reporting mandate - IFPR Reporting Mandate UK – A Q&A article

IFPR Reporting Mandate UK – A Q&A article

IFPR Reporting Mandate UK ifpr reporting mandate - IFPR Reporting Mandate UK – A Q&A article

IFPR reporting mandate: What it is

The UK Investment Firm Prudential Regime (IFPR) is a reporting obligation applying to all UK MiFID II Investment Firms. It is set to come into force from the 1st of January 2022. While the final contours of the IFPR regulation are still being finalized — with the Financial Conduct Authority (FCA) just having published its third consultation on the matter — it is evident that investment firms’ reporting obligations will differ based on their prudential category.

Why is the IFPR reporting mandate being introduced?

Simplifying and streamlining the prudential requirements of MiFID investment firms that are regulated in the UK by the FCA is the main goal of this regime. It wants to refocus expectations and prudential requirements away from the risks firms face, towards the potential harm they can pose to the markets and consumers.

Who will be affected by the IFPR?

The IFPR is applicable to:

  • Collective Portfolio Management Investment Firms (CPMIs)
  • MiFID investment firms authorised and regulated by the FCA, and
  • Regulated and unregulated holding companies that contain either of the above

It will not apply to investment firms designated by the Prudential Regulation Authority (PRA). They will continue to remain under the prudential supervision of the PRA.

What does this mean for affected entities?

The IFPR is analogous to the Investment Firms Regulation (IFR) and Investment Firms Directive (IFD) prudential regime that is applicable to EU MiFID firms from the 26th of June 2021. As its enforcement date is set after the EU Exit transition period, UK MiFID firms will comply with the UK-specific prudential regime, IFPR.

What does the future hold?

To develop the IFPR, the FCA is expected to assess responses from the European Banking Authority’s (EBA) Implementing Technical Standards and the industry to its consultation paper, among others.

While MiFID firms in the UK have less than a year to get ready, they can start by recognizing potential impacts this new regime is going to have on their business. This process can be eased to a great extent as there is already a lot of documentation available on the IFD/IFR.

How can firms prepare for this regime?

With a targeted implementation date of 1st Jan 2022, FCA regulated investment firms can follow a few simple steps to get ready for this regime:

  • Determining prudential category
  • Identifying relevant requirements based on the above classification
  • Performing an impact assessment
  • Designing and implementing an action plan

How we can help you

Under the IFD/IFR regime, investment firms in the EU are required to submit reports in the XBRL format. The UK FCA may bring in the XBRL requirement too.

With our extensive experience providing XBRL solutions in the UK — for HMRC, FCA-ESEF reporting requirements — we can assist you with IFPR reporting. If you are a qualifying firm under MiFID II, our SaaS solution can —

  • Integrate with an automated reporting framework
  • Facilitate auto data extraction and XBRL instance generation
  • Provide modularity to incorporate future changes in business rules or taxonomies

For a hassle-free IFPR compliance with IRIS iDEAL®, get in touch.

UKSEF, ESEF, UKSEF taxonomy, ESEF taxonomy

UKSEF, ESEF, UKSEF taxonomy, ESEF taxonomy

UKSEF, ESEF, UKSEF taxonomy, ESEF taxonomy


fca ixbrl - Avoid running into style issues with your FCA iXBRL filings

Avoid running into style issues with your FCA iXBRL filings

Must your FCA iXBRL compliance lead you to a compromise on how your annual report in the xHTML format appears in comparison to the highly attractive PDF document you’ve been presenting all these years? Not really.

However, in our close monitoring of a good number of early iXBRL filings this year, we were surprising to see that in several cases the xHTML versions of annual reports reflect none of the style elements of their well-designed PDF counterparts.

For many years now, companies have been publishing annual reports that are highly stylized and aesthetically pleasing. This is because annual reports serve two purposes. They are both a legal document for regulatory compliance purposes as well as a document that investors and analysts use to track companies’ financials and strategy. The appearance of a document counts to a greater extent when it is used by investors and analysts.

While helping companies prepare documents that comply with the ESEF mandate, several compliance solutions have not been able to effectively retain the stylized elements of a PDF annual report within an xHTML document.

Here’s an example that shows how strikingly different both versions look. In this PDF version of a company’s annual report, you can see that the graphs are attractively designed and placed.

Screenshot of a company’s PDF annual report

FCA iXBRL

However, in the xHTML version of the very same company’s annual report, you would notice that the graphs appear as though they have been stretched horizontally. Some extra graphs and text have also been introduced.

xHTML version of the same company’s annual report

FCA iXBRL

xHTML reports that have design elements missing run aground on two fronts.

Auditors’ dilemma about signing off on documents without the usual design elements

It is the duty of an auditor to provide an opinion about an annual report. In countries where ESEF filings need to be audited, it becomes hard for auditors to provide an opinion when the xHTML file looks completely different from the stylized PDF file. What do the auditors sign off on? Is it on an unattractive xHTML document or an enticing PDF?

An unattractive annual report can put off investors and analysts

When an annual report is unsightly, it may not garner as much attention from investors and analysts as the company desires. The whole idea behind the FCA iXBRL format is to increase the accessibility and comparability of annual reports. An xHTML report that falls short in the aesthetics department defeats that purpose.

To conclude

Running into glitches during a first-time FCA iXBRL filing might be expected. However, issues stemming from a software’s incapability to effectively introduce style elements into an xHTML document are avoidable.

While preparing FCA iXBRL filings, companies must expect a lot more from your compliance software than a mere capability for XBRL tagging.

E-mail us your PDF annual report at  contact@fin-xsolutions.com. We would be happy to show you how your filing would look in xHTML.

FCA iXBRL, iXBRL Filing, xHTML

FCA iXBRL, iXBRL Filing, xHTML

FCA iXBRL, iXBRL Filing, xHTML