18/4/2024
Are sign errors a minor issue? Let's delve into company valuation mechanics to discover how these issues impact valuation.
During the last year of financial reports, a handful of issuers voluntarily experimented with their report creation software capabilities for block tagging. Most software indeed already included such features, as it had been clear for years already that block tagging of the notes to the financial statements would be mandatory for financial reports covering periods starting on or after January 1st 2022 (and therefore published in 2023).
These issuers were usually faced with issues when trying to tag a section with multiple concepts, however. Accordingly, software improved and many editors presented their updated solutions in August. It is noticeable that none of the use cases presented were anywhere close what is now recommended by the Reporting Manual. Indeed, most stakeholders were assuming that overlaps would be limited and that software would not need user interfaces to manage them.
However, applying the new rules, most accounting policies will need to be tagged using four to eight different tags. Beyond the issue of nesting, paragraph 1.9.2 also clarifies that a granularity more precise than sections (as defined by titles) need to be considered. If such a section covers two topics for which a tag exists and even if the contents linked to these topics are mixed in a table in such a way that it would be impossible to tag them separately, ESMA recommends all corresponding tags be used for this section. If no assistance is provided, there is a high likelihood that the tagging process will be both tedious and prone to error.
Our Prism tool has been updated to provide a clear view on the block tagging structure in a report, and a list of sections for which a complementary tag may be missing. This test may be applied as a final check to confirm the completeness of your tagging, but it can also be incorporated into your process for a much more agreeable experience : focus on identifying the closest meaning concept for each disclosure, and Prism will tell you how to complete your file.
As an issuer trying to apply the suggested changes, you can of course use your tagging software if it handles nested tagging efficiently enough. However, we also integrated in our tool the ability to directly apply the missing tags and output a fixed package! This includes the production of a properly structured presentation linkbase.
Below is a screenshot from the application of this test on last year's report of an insurance company (this is about half of the suggested complements). This company performed a tagging on its note on a voluntary basis, and of course long before ESMA's rules were designed. Their tagging focused on bringing the most value to end-users and therefore uses the closest tags to mark a disclosure. Using Prism, this company will be able to easily complete its tagging, and it will be a breeze for its auditors to confirm its compliance.
Of course, as for all Corporatings software, this works on reports of any language. Contact us for more information!