Industry participants have until the end of this month to respond to the Committee of European Securities Regulators’ (CESR) call for evidence on the use of a standard reporting format for financial reporting for issuers admitting securities for trading on regulated markets. In the US, the Securities and Exchange Commission (SEC) has already mandated similar measures for US companies to provide reports using extensible business reporting language (XBRL) and CESR has also indicated this as a potential format.
According to CESR, a standard reporting format for financial reporting would enable automated processing of financial information, cutting out the need for manual re-entry and comparison. Investors, analysts, journalists, and financial intermediaries would be able to search information about companies on the internet more easily, to download the information into spreadsheets, to reorganise it in databases, and to put it to other comparative and analytical uses, says the regulator. Firms have until 30 November 2009 to indicate whether they agree with these proposals.
The paper begins by describing, in brief, the idea of standard reporting formats and XBRL reporting, then presents recent developments and the current situation, and finally analyses the current legislative framework. At the end of this paper a number of questions, both general and detailed, are presented. The aim of these questions is to gather information on issues that have been identified by the regulator as important.
CESR is attempting to ascertain the perceived pros and cons of moving to a standardised reporting regime and whether the industry is keen on XBRL as a format. This includes the possible liabilities and costs involved in moving to a new regime such as this.
Last year, the SEC voted 4-1 to require 500 of the largest public companies to begin filing financial reports in XBRL in June this year. The rest of the companies using accelerated filing are being phased in over a two year period and a final group will be moved over in 2011, according to the regulator. The SEC also voted 4-1 in favour of requiring mutual funds to file their risk and return information using XBRL to make it easier for investors to analyse funds’ performance, risk and fees. These funds must to move over to XBRL by 2011.
As well as the US, XBRL has already gained traction as a reporting format in other countries including a number in Asia Pacific, such as Japan, Korea and China. Adopting a similar standard to other countries would be in line with the current trend within the regulatory community to move towards more harmonised standards as a whole, however CESR has indicated that this is only a proposal at this stage.
Moreover, some banking supervisors in European Union member states have active XBRL projects, which either allow or require XBRL compliant reporting, such as Belgium, Germany and Spain. This is in accordance with the recommendations of the Committee of European Banking Supervisors (CEBS), which has developed XBRL taxonomies for the prudential reporting framework Corep (Common Reporting) for the new solvency ratio of credit institutions and investment firms, and for the standardised financial reporting framework (FIinrep) for credit institutions operating in the EU.
On the basis of the feedback provided and its analysis, CESR has said it may address the issue in more detail in the preparation of a report to the European Commission on the possible future development of the network of officially appointed mechanisms for the central storage of regulated information (OAMs) by 30 September 2010.
The idea behind XBRL is that instead of treating financial information simply as a block of text, it additionally provides an identifying tag for each individual item of data. This has proved a popular concept in the world of corporate actions and Swift, the Depository Trust & Clearing Corporation (DTCC) and XBRL US are currently working on an initiative aimed at implementing XBRL for corporate actions data in the US.
Together, the three companies are hoping to build a corporate actions XBRL taxonomy with data elements aligned with the industry standard ISO 20022 repository elements. According to Swift, this will enable issuers to electronically ‘tag’ data using off the shelf software when preparing a corporate action announcement. The tagged data can then be transformed into an ISO 20022 message for downstream processing throughout the chain, from intermediaries to investors.
If CESR gains confirmation from the industry that it is keen to move to XBRL formatted reporting, this will prove a boost to the corporate actions initiative and may help to kick it off in Europe. However, there are likely to be costs involved in such a move and it will be up to the industry to judge whether the costs are worth the end result.