CFA Institute to ESMA: For Investors’ Sake, Take ESEF Further
You’re home after a long day. You’ve done your chores and are finally settled in to watch your favorite show when the same thing you’ve wished forever (or at least it seems that long) crops up as you fumble with the three controls to access your show: Why can’t there be a universal remote — one button to push that gets you where you want to be?
The same wish has no doubt played out in investors’ minds where the full annual financial report (AFR) is concerned. Why so piecemeal? Can’t these reports be in one place and electronically accessible by all?
With investors in mind, CFA Institute recently responded to a consultation paper by the European Securities and Markets Authority on the establishment of a European Single Electronic Format (ESEF) for regulatory filings for all European Union member states.
CFA Institute has long supported technology to improve the democratization of information to investors. Prior to the implementation of EDGAR (the Electronic Data Gathering, Analysis, and Retrieval system) in the mid-1990s, financial reports of US public companies were not available without a written request to the issuer to mail a copy. CFA Institute supported the EDGAR initiative because we believed it would — as it has — help democratize the availability of financial information.
Over the last decade we have provided similar support to the development of XBRL (eXtensible Business Reporting Language), including development of publications such as eXtensible Business Reporting Language: A Guide for Investors.
We, therefore, support the ESMA proposal, as we believe electronic reporting serves investors to more effectively perform their financial analysis. We do, however, have some concerns.
We do not believe that the ESMA consultation goes far enough in its proposal that the full annual financial report be required in PDF with only the basic financial statements in structured format. Simply tagging the values on the face of the financial statements is insufficient. We suggest there be a requirement to separately tag the values in the notes to the financial statements as this information is extremely valuable to investors.
Further, we suggest text-block tagging be required for the management commentary, each note to the financial statements, and each significant accounting policy. The user can then perform text analysis using the text block-tagged information rather than having to resort to the PDF, thereby increasing ways to use unstructured data.
Dual Filing Not Good for Preparer or Investor
CFA Institute also believes that a single XBRL filing should be the mandatory format for reporting. Dual filing in both PDF and structured formats does not fully bring about the efficiencies afforded by XBRL and could lead to added cost and complexity for the preparer community. When filers follow a two-tier process whereby they prepare their interactive data as an additional step after their financial statements have been prepared to fulfill their regulatory filing needs, XBRL doesn’t produce its intended results (i.e., increasing the speed and frequency with which financial information is prepared, reported, analyzed, and used). Nor does it result in cost reductions.
Dual filing is also not helpful to investors. It may lead to errors and inconsistencies between the PDF report and XBRL filing and cause confusion over which is the official version. Furthermore, if the full annual financial report is only available in PDF then that is the version investors are likely to use in their financial analysis — because of their comfort with it — instead of using both sources of information rendering the XBRL filing of only the financial statements less useful. This has been the case in the US where the Securities and Exchange Commission (SEC) currently follows a dual-format approach.
We believe the solution to this issue is the implementation of iXBRL (in-line eXtensible Business Reporting Language) as it provides a means of viewing the XBRL filing itself in a human-readable, understandable, and familiar format. iXBRL allows for the inclusion of XBRL tags within ordinary, human-readable XHTML documents. This avoids the need for a separate means of converting XBRL data into human-readable form.
A human-readable version of an XBRL report is useful to filers and users in ensuring the filing is accurate, consistent, and complete. It also renders a separate PDF filing unnecessary.
We urge ESMA to consider our suggestions, which are in the best interest of investors.
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Image Credit: iStockphoto.com: Danil Melekhin