Digitization of annual reports (ESEF): what if we opted for a genuine financial publishing strategy?
ESEF challenges the habits of listed companies
The new electronic annual report format, ESEF (European Single Electronic Format), will come into force in 2021, radically changing the financial reporting habits of listed companies.
Pour mémoire, tous les émetteurs européens soumis à la « Directive transparence » (donc cotés sur un marché réglementé) entrent dans le champ de l’ESEF. Their annual reports covering the financial years from 2020 onwards must :
- to tag their IFRS consolidated accounts in XBRL (eXtensible Business Reporting Language) format;
- produce their full annual report (or URD if applicable) in html format.
This new report format including XBRL and html is called iXBRL (or Inline XBRL).
The European regulator’s objectives make sense:
- standardize periodic reporting by European companies to facilitate analysis and comparability ;
- encourage wider use of data by analysts and investors by making annual reports machine-readable;
- enhance the transparency of European Union capital markets.
This reform has a major impact, if only because no issuer is equipped internally to meet this requirement. Where many issuers were content to produce their annual reports in Word, the use of specialized software has become an obligation, bringing with it an unavoidable and recurring additional cost.
Greater visibility for issuers
Faced with these constraints, the opportunities highlighted by the regulator are real for mid caps: automated and instant access to published financial data will facilitate the work of analysts and managers, and therefore broaden the spectrum of companies monitored in a given sector or asset class. For the issuer, this means increased visibility and the opportunity to reach more investors for future fund-raising.
But there’s another advantage, depending on how the sender approaches the subject. There are two ways to switch to the electronic report format:
- je ne change rien à mon process habituel d’édition et une fois que tout est prêt, j’envoie le rapport à un prestataire pour conversion au format iXBRL (XBRL+html) ;
- I’m taking advantage of the digitalization of the format to transform my publishing process by switching to a collaborative publishing format via a disclosure management platform.
Which solution to choose? a real publishing strategy takes shape
1. Outsourcing has the advantage of simplicity but adds an extra delay
Solution 1. (complete outsourcing of the iXBRL report) has the advantage of convenience and simplicity, but adds an extra one to two weeks to the publishing process.
It also presents a quality and conformity risk, which remains the responsibility of the issuer, and does not guarantee the graphic rendering of elaborately designed documents.
2. Some major issuers plan to publish their annual reports 3 weeks earlier from next year thanks to digitalization.
Solution 2. is more expensive: cost of software, training, time spent.
But once the teams have been trained and the new process stabilized, the issuer retains control over the production of its financial information (quality, compliance, design) and amortizes the cost of implementation and training over several years, which becomes negligible.
The big advantage is that, with these collaborative publishing solutions, each contributor (accounting consolidation, legal, finance, communications, statutory auditors, etc.) will work at the same time as the others on his or her part of the document, thus reducing the time taken to publish the report, which until now was the only incompressible delay in the financial information chain. Some major issuers who have already implemented this new process plan to publish their annual reports 3 weeks earlier from next year.
Before concluding, let’s also mention a third, more radical option, which would be to transfer your company before the end of 2020 to the Euronext Growth market, which is not subject (for the moment) to the Transparency Directive and therefore to the ESEF.
Are you hesitating?
The closer we get to 2020, the more issuers will have no choice but to adopt solution 1 (outsourcing). For these, the right strategy will probably be gradual internalization in years 2 and 3, with a view to achieving total autonomy in 2022, when all financial statements (and not just the 5 primary statements) will have to be published in XBRL.
For these, the right strategy will probably be gradual internalization in years 2 and 3, with a view to achieving total autonomy in 2022, when all financial statements (and not just the 5 primary statements) will have to be published in XBRL.
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