Firms won’t start publishing ESEF reports until early 2021. In Finance, that can feel like a lifetime away, and therefore ESEF either hasn’t featured on agendas yet or is something that remains comfortably near the bottom of the to-do list – for now at least.

At Arkk, we’ve been watching the ESEF story unfold for a while now, and we’re eagerly awaiting the final technical standards which we expect before Christmas 2018. We’ve shared some views on the topic already rounding up what exactly ESEF isits’ link to the digitisation of reporting and how an organisation might go about the associated tagging. Meanwhile, we have been busy meeting with a range of firms to discuss what it means for the world of corporate reporting. Throughout our conversations, there are two main questions that have sparked much debate. The first is around the audit of iXBRL (another time for that one), and the second is the recurring question: “one document, or two?”

The technical bit 

The ESEF mandate requires firms to take their Annual Financial Report (“AFR”) and produce iXBRL, which will be embedded in an xHTML document. What this means is that every listed firm caught under the new mandate will have to put an xHTML document on their website at year-end, and then the iXBRL content can be read digitally to compare/contrast all the firms within scope.

As we already know, firms are subject to the Transparency Directive, which the new iXBRL/xHTML standard doesn’t affect. Amongst other things, the directive means that firms now have to:

  • Publish their AFRs on their website
  • Dictate the items they need to disclose by applying International Accounting Standards (IAS)

This means that, at present, the vast majority of businesses produce a PDF each year, which they post on their website. That PDF document is often a lengthy one, and in many cases they’re beautifully crafted, branded and well put together. There are dedicated design agencies who create these documents, with a great number of talented individuals involved; copywriters, graphic designers, accountants and many others besides. Ultimately, the process of producing AFRs has long been an entire industry in itself.

What does that mean? 

This means that a discussion point has arisen, as there are now effectively two separate standards to meet. So, can both requirements be satisfied all in one document, or perhaps more than one? Will it be one xHTML document placed on the website, with iXBRL tags embedded, and will the PDF document fall away entirely?

Or, might there be one format (likely PDF) that is similar to, or exactly the same as, the current AFRs which are produced. Then, as an aside, an xHTML document which is produced and put on the website to satisfy the ESEF requirements? As to where this will go, there are a couple of things to consider.

The purpose of the documents 

Currently, AFRs tend to be the aforementioned richly-branded documents. The visual make-up of these is crafted by artists and designers, ensuring that the documents are as appealing to consume for the reader as is possible. As much as they are required company documentation, they’ve also become key communication collateral businesses use to position themselves in the market. Whilst there is a legal requirement (the Transparency Directive) driving the publication of the document, the opportunity to use them for company positioning might now be an equal motivation for some.

xHTML authoring 

Furthermore, the beautifully crafted documents typically involve graphical representations, brand images and other visual ways of representing the information. xHTML, whilst better than some standards, is often harder to construct in such a visually appealing way. Moving between file formats and xHTML is likely to cause formatting issues, which is a big no-go area when it comes to making something polished and inviting to the reader.

Auditing of the documents 

Whilst there is no official view of whether the iXBRL (and therefore the xHTML) will be subject to audit, it appears very likely that it will be. However, that’s not really a problem given that tagging only spans the P&L, Balance Sheet, SOCIE and a few mandatory tags.

However, it’s clear that the year-end timetable for many firms is already tight and adding additional time for a process around iXBRL could be painful and will need to be minimised. Therefore, keeping that process away from the far more involved and down-to-the-wire content changes is likely to be something firms will strive for.

The digital outlook 

ESEF Tagging Disclosures

All of the above points make a reasonable case for having two separate documents created going forward. One of those will be the required-by-law ’compliance document’, in xHTML/iXBRL, being audited, and being placed on a company website.

The other document could be the ’annual marketing document’. Likely this will feature much of the same information but will allow firms to deliver other important company messages, just as they do now. There’s nothing to stop firms using other media formats (video, storybooks, etc) in this type of marketing document to tell their story.

This outlook ties nicely to the story starting to be told by Aviva in their 2017 Annual Report. The front cover directly states that ESEF is driving changes to the way they report, and what’s apparent in the document is that it’s moved towards a more “plain text” set of accounts, rather than a traditional “glossy” format. However, also of note is their statement, “As we become more digitally focussed we have launched our new website in Q4 2017.”; which seems to suggest that they’re using digital to meet both legal and marketing objectives.

When ESEF was first being talked about, some commented that “this could be the death of accounts design firms”. We believe something entirely different. This might in fact be an opportunity for change throughout the industry, and a way for those same design firms, or the clients they represent, to push the envelope in the way corporates convey their key messages to the market.



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