Written by Bob Schneider Posted on August 8, 2010
Last week, the Committee of European Securities Regulators (CESR) offered several measures to improve access and search of financial information of listed companies in the EU’s 27 member countries. The proposals present options for the organization and centralization of so-called Officially Appointed Mechanisms (OAMs) that are the financial information storage facilities for public firms. The measures also call for a cost/benefit analysis of an XBRL mandate for listed company financials and contemplate a five-year phase-in period.
The measures are detailed in the Consultation Paper Development of Pan-European Access to Financial Information Disclosed by Listed Companies. Summaries of the proposals are found in the CESR press release, Reuters, and Financial Times (subscription required); both the Rivet and EDGAR Online blogs have posts
Here is the key section on XBRL:
CESR has agreed on undertaking a cost/benefit analysis on possible transition to mandatory XBRL filing within a period of five years. Such a period would cover a preparation time of three years and a voluntary filing program of two years prior to the start of the mandatory filing requirement. The filing requirement would cover periodic financial information of issuers covered by the TD [Transparency Directive] and preparing their financial statements in accordance with IFRS. CESR anticipates issuing a consultation paper on the issue in 2011….
Only financial information is being emphasized at this point:
CESR also notes that even though there are standards that could be used for structuring information other than financial information, demand for such structured information seems currently to be low. Therefore, CESR considers that common input formats for other regulated information than financial information are currently not of the highest priority.
Europe and the US are headed in the same direction toward a single IFRS/XBRL accounting and reporting regime. In 2005, the EU mandated IFRS for listed companies of member states; although the US has delayed implementing IFRS, it is still moving toward adoption. (See CFO.com’s highly useful series on convergence.) Meanwhile, as readers know, the US began to phase-in XBRL for financial reporting in 2009. Though certainly not a given, a single IFRS/XBRL regime for US and Europe is in sight for the latter half of the decade. Depending on your point of view, that’s either a long and disappointing delay in the timetable former SEC Chairman Cox envisioned just a few years ago, or, given the nature of governments and their bureaucracies, a reasonable wait for a single set of reporting standards.
Turning to financial information storage, note that the OAMs the proposals seek to integrate are distinguished from the national registers that Thomas Verdin has discussed on this blog. The OAMs are established by the EU’s Transparency Directive, which requires each member state to set up a centralized storage facility for the “regulated information” listed in the TD. The CESR paper notes that “Currently most OAMs allow different types of file formats for filings. The information is usually stored in PDF, text or HTML format. Only one OAM requires filing of financial information in XBRL format and another allows it.”
Many national registers are linked through the EBR.org network driven by the BRITE (Business Register Interoperability Throughout Europe) project. As the CESR paper discusses on page 18, a few years ago CESR and BRITE representatives met but didn’t proceed on collaborative efforts to connect OAM and national registers. The paper states:
CESR notes that interlinking business registers and OAMs would provide end users a wider selection of official information relating to EU issuers. However, CESR considers that regulated information to be published under the different securities law directives…should already cover the information that is likely to affect the value of the listed securities. The information available at the business registries is of more relevance in terms of non-listed companies…Therefore CESR considers that the link to national business registers is not of the highest priority.
As described in this paper by researchers at the Financial Law Institute at Ghent, the burden of filing requirements and the fragmentation of financial information for European companies can be “considerable”:
….Take the example of a public limited company with its registered office in the UK, having a branch office in Belgium and the shares of which are admitted to trading on Xetra (Frankfurt’s stock exchange)…This company will have to file corporate information with business registers located in the UK and in Belgium, as well as to disclose financial information and to notify it to the competent authority and to the OAM of Germany. Moreover, Belgian law will require a certified translation of the company documents into French or Dutch; while German law may require the information to be made available in German or English and to publish notices in newspapers. This multiplication of often divergent requirements not only increases the risk of non-compliance, and ensuing liability risks for executives, but it also leads to fragmentation of the available information over several registers or databases in different countries.
From an XBRL vantage point, the multiple information requirements, facilities, and venues are worrying. XBRL exhibits are not simply traditional financials sprinkled with a dust of computer code; rather, the process of mapping and tagging statements creates an information resource that differs from traditional financials in important ways. We shouldn’t expect a nirvana of a single global depository of company information based on a single set of IFRS/XBRL standards anytime soon. But a hodgepodge of XBRL and non-XBRL financial disclosures -- with varying authority and purposes in different European jurisdictions – should be avoided. As the SEC has mandated, there is a need for a phase-in of liability and assurance requirements for XBRL exhibits. But, ultimately, XBRL statements must be the single set of financials with final authority.
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