ARKK had the pleasure of joining XBRL Chairman and BM&A UK Director, Thomas Verdin, at the XBRL Europe conference to discuss how and why issuers need to take ownership of their ESEF message. We continue to see the trend where issuers focus on what there are reporting in their non-digital format, mostly in their pdf version of their annual report, and not prioritising what they are reporting in the digital, tagged version. The tagging of the annual report is as equally important as the disclosures in their text copy.
There are a number of considerations that an issuer should take into account when reviewing or creating their digital version. When tagging reports of subsequent years, it is often common practice to reutilise the tagging of previous years, by rolling forward the tagging. This can yield significant savings, particularly with timing and costing but even with the roll forward of previous tagging, there can be errors. Scaling and signage can frequently change in an annual report and these will not be captured by an automatic roll forward of the tags and human intervention will be needed. In addition, as it is still a relatively new mandate, we are seeing updates to the ESMA Reporting Manual and to the ESEF taxonomy on an annual basis. These updates will not be captured by simply rolling forward your tagging and will also have to be manually updated on the report. This means that the issuers needs to have an ESEF expert inhouse, or a service provider, who can advise on what the changes are to ensure the issuer is publishing a digital message inline with their non-digital disclosures. For those issuers who don’t utilise previous year’s tagging, they will be at an even higher risk of error tagging the report from scratch as it is a manual exercise.
We then have the questions of do issuers give the same level of detail in their digital and non-digital reports? Do issuers consider ESEF when creating their financial statements? The ESEF taxonomy can be used a useful tool when creating your financial disclosures as it can offer structure and guidance on granularity expected by regulators and other stakeholders. Many issuers haven’t considered that their digital report can easily be used by stakeholders for benchmarking and that is something that they can also take advantage of. In order to do so the tagging needs to be of high quality and accurate. Something that we have come across with issuers and their third party reviewers, is the request to create a tag that actually gives more meaning to the disclosers that are in the text version of the report. This should not be the case, the issuers should align their digital disclosures to their non-digital disclosures and if further meaning is to be added then this should be reflected in both.
So with all this considered, what internal controls has an issuer in place to ensure they in control of the digital message they are putting out to the world with ESEF? There are endless things to consider here. Are they tagging inhouse? Does that lead to a key person dependency? Does the issuer have a number of senior people who are educated in the ESEF requirements to sign off on the tagging decisions? If the issuer is using a service provider, they should consider the credentials of that service provider but they should also still review and sign off on their service provider’s tagging decisions. In addition, there are many analysis tools on the market that bring great efficiency to the ESEF review process but all warnings and issues flagged by these tools need to be reviewed and considered if they are applicable to that specific issuer.
When then have the auditor’s opinion. Working in 12 jurisdictions across the EU, we have consistently seen different approach by auditors. With questions that are being raised by auditors, are they being reviewed by the issuer, along with the service provider. The issuer plays a key role in that review process and should be the first to review the audit questions, before they get to the service provider. Just like the issuer would with agreeing their text disclosures, the issuer should be the party agreeing or disagreeing with the auditor comments, not a third party.
In conclusion, there are many steps an issuer can implement to take control of their ESEF message. It is inevitable that other stakeholders, including investors, will start to use the tagged version of annual reports and then it will be too late for issuers to modify their publicly available digital version, if it is incorrect. Now is the time for issuers to ask the questions on their internal controls, on the service providers and on their auditors, to ensure that they are happy to sign off the message they are putting out with their ESEF report. There is also the need for further guidance from regulators, including ESMA, to further define requirements and to stop such differing in options of the mandate. I do also believe that there is some responsibility on service providers to educate their clients, to ensure they are adhering to best practices from what they are seeing in the market. That’s why, at ARKK, we hold frequent webinars, workshops and round table to keep our clients up to date with all developments in the world of XBRL reporting.