In reports for financial periods starting on or after 1 January 2021, companies admitted to trading on UK regulated markets must—under DTR 4.1.14—produce their annual financial report in a specified format. This structured digital report format was set out in the UK version of the European Single Electronic Format regulation (TD ESEF).
Filing of annual reports with the “national storage mechanism” in ESEF has been voluntary since 1 January 2021 (financial periods starting on or after 1 January 2020), and mandatory from 1 January 2022 (in respect of financial periods starting on or after 1 January 2021).
This report follows and builds on the FRC’s first review in 2021 of early voluntary digital reports from across the UK and Europe, and found that whilst many companies had risen to the challenge of transitioning to the new reporting format and taken on board tips provided in the FRC’s 2021 findings, ‘…data quality and usability are below the level expected for companies in a leading capital market’.
The report therefore sets out a number of practical recommendations organised into three key areas for improvement (process, usability and design, and tagging) with a view to enabling companies to better meet the needs of investors. It also highlights some further upcoming changes of which companies should be mindful, including in respect of tagging and timetables.
The report includes, among many other practical tips and suggestions, the following findings and related recommendations:
Many companies continued to focus on producing their report in PDF, converting to a structured report as an afterthought—companies should take more ownership and responsibility for tagging, and ensure there is enough time to produce a good quality structured report.
Consider using integrated disclosure management tools to directly produce annual reports in different formats and tag them in parallel to finalising the content and design process. This may be more efficient than the “bolt-on” approach of tagging the report once it is converted into XHTML, which most companies continue to apply.
The structured report is the official version of the company’s report for the purposes of the DTR regime, and should therefore be subject to appropriate review and governance processes. A company might consider improving the engagement and education of its board and developing a review process, which helps to appropriately direct the board’s attention to the most important aspects for review. Further, consider documenting processes and controls, so that knowledge is retained, notwithstanding staff attrition.
Companies can reduce the risk of a filing of the company’s report being rejected by making use of the FCA’s test facility, which will help to catch any errors relating to incorrect file naming and/or structure. (Note, however, that test reports must not contain any inside information.) The Lab report contains a section of ‘tips for submitters’, covering how to appropriately submit the report to the FCA depending on file type (for example, ZIP vs HTML).
For companies who are required to submit structured reports in more than one jurisdiction, keep filings as consistent as possible, and clearly label different versions on the company’s website.
Usability and design
Where a PDF-to-XHTML conversion process is used, companies should make their design agencies aware of particular fonts, colours and other settings used in the PDF, to avoid issues in the conversion to XHTML. The Lab report also recommends that companies include the front half of their report in any dry run, as this is where more complex design issues in XHTML are likely to arise.
Companies should ensure that it is the FCA-validated and filed version of the report which is made available on the company’s website, and be sure to make the file available with an Inline XBRL viewer, as per the FRC’s 2021 recommendation (the Lab report found that only 21 out of 50 companies did this in respect of the latest reporting round).
It’s advisable to minimise potential issues around slow opening, downloading or corruption of reports by testing reports in advance in different browsers and viewers, and ask the company’s tagging provider to optimise report loading. The FRC notes that simple technical changes can make a big difference.
Companies should also ‘embrace’ XHTML as a web-based format when producing their structured reports. This means, for example, that reports can be designed to be responsive to different screen sizes and can incorporate interactive elements such as dynamic graphs, videos and improved navigation features.
The Lab report notes that significant inaccuracies remain in the application of core tags, unnecessary creation of extension (custom) tags, and appropriate anchoring between tags. Minimise issues around incorrect tagging by ensuring that technical accounting staff who are familiar with the tagging taxonomy review the accuracy, consistency and interrelation of the report’s core and extension (custom) tags.
• Ensure adequate technical (internal and external) and board review processes are put in place in sufficient time to produce an accurate structured report in the next publication round.
• For financial years starting on or after 1 January 2022, companies will also be required to tag the notes to the accounts, including accounting policies. Companies should test text block tagging of the notes well ahead of year-end, as such text block tagging will involve spending time mapping the mandatory tags to their notes and applying judgment.
• Check whether any changes to the core tagging taxonomy will have any impact on tagging. For instance, those companies changing from using the ESEF/IFRS 2020 taxonomy to the ESEF/IFRS 2021 taxonomy may want to have a look at relevant recent changes.
• Be prepared to accelerate the issuance of the digital report as the deadline will revert from the extended Covid-related period of six months to four months for year-ends on or after 28 June 2022.
This article was produced in association with White & Case UK’s Public Company Advisory team. Read their original alert here.