“The quality of the financial statements is growing, but we still have work to do”, – Yurii Shapoval, the Commissioner of the NSSMC

The interview with Yurii Shapoval, the Commissioner of the National Securities and Stock Market Commission

Mr. Yurii, please tell us how the process of financial statements submission to the Regulator by professional stock market participants is arranged? What kind of reporting is it – daily, monthly, quarterly, or annual? In what format and according to what scheme is it submitted?

Y.Sh.: In developing the regulatory framework, which is governing the submission of financial statements to the NSSMC, we strive to ensure that this process will be as unified and complete as possible, I mean, it will affect all necessary indicators and data, and at the same time will be as simple and convenient as possible for market participants. By the way, the own regulatory act is “dedicated” to each professional participant — so, if necessary, the colleagues will be able to find all the information related to their work. The current state of the reporting system is being analyzed to simplify it and improve the possibilities of providing automated inspections and control. All statements that are submitted to the regulator have long been combined with the fact that it is submitted in electronic XML format and using an electronic digital signature.

What does it look like by each professional participant?

Y.Sh.: In terms of specific professional participants, for example, the investment firms submit monthly, quarterly and irregular reports. An irregular reporting is the information about made or concluded securities transactions  in the unorganized market.

The depository institutions, in turn, report on a daily and irregular basis. So, every day they provide to the NSSMC with a certificate of accounting transactions. The irregular reporting may be the data on exceeding the thresholds, on the first crediting to the securities account, on the increase or decrease of a significant shareholding.

NPFs (non-state pension funds) report daily to the Regulator in the form of a certificate of net assets value. The collective investment institutions report on a monthly basis. That is, for each professional participant we have a set of reporting data that we receive at a certain time. This ensures the proper supervision and regulation of the capital market.

What about securities issuers? Does everything work for them as well?

Y.Sh.: From the issuers’ side, the scenario is somewhat different. They provide annual, interim (quarterly), and special information. The latter is, for example, personnel decisions or notifications about the purchase of a certain shareholding. It should be noted that the annual information is posted on the official website of the issuer and must be publicly available for at least 10 years. The conscientious fulfillment of their disclosure obligations by issuers is extremely important and be aware of the affairs of the issuer in order to protect investor rights.

On which proprietary and governmental resources should all information be disclosed? How does the NSSMC verify the accuracy of reporting?

Y.S.: Probably needless to say, that the publication of statements on the website is not just a good form, but the obligation of all issuers. Also, the issuers should disclose information on the website smida.gov.ua, as the SMIDA (Stock Market Infrastructure Development Agency) is the agent of the NSSMC on this matter, and should submit it to the NSSMC. I would like to draw your attention to the fact that different categories of issuers have different requirements for the disclosure of regulated information. For example, regulated information of private joint-stock companies, that have not made a public offer regarding issued securities, is disclosed on the website and as part of the reports to the NSSMC. By the way, the market participants submit financial statements according to the international standards (IFRS).

Regarding the information check, I would like to draw your attention to the fact that for each aspect of control, the NSSMC’s departments have compiled certain checklists that are subject to filling in on the basis of information that is published and/or sent as part of administrative data. Much of the data is filled automatically, using certain algorithms with a risk-based approach. Depending on the nature of the detected violations, the NSSMC implements appropriate enforcement measures.

What can you say about the audit reports on the “certificates” of financial statements, how organized is this issue today? For which types of reporting is this  procedure mandatory?

Y.Sh.: Yes, audit reports are a kind of a guarantor of quality reporting. The audit report is mandatory for the issuers’ annual reports, for the annual consolidated reports and is not mandatory for quarterly reports. But if the issuer authenticates with quarterly reporting, the issuer must disclose that fact. By the way, if the issuer is among those in the public interest, the auditor must be chosen from the so-called “fourth section of the Register”.

Regarding the cases of detected violations of the IFRS application in the preparation of financial statements and the inconsistency of the opinion expressed by the auditor, there are numerous cases of the NSSMC’s appeal to the Audit Public Oversight Body or the Audit Chamber of Ukraine.

We know that there is now a financial statements system that provides for the submission of the latter in a single electronic XML format. Can you tell us more about this system?

Y.Sh.: That’s right, all information, including the financial statements, is submitted to the Regulator in XML format. You should not be afraid of this abbreviation, it is only a generally accepted file format.

In addition, today in Ukraine the process of introducing financial statements in the single electronic format iXBRL on the principle of “one stop window” is underway. The XBRL format is a well-recognized international standard that allows the processing of large volumes of qualitative and quantitative indicators, and from English it is translated as “eXtensible Business Reporting Language”. This approach is approved by the Resolution of the Cabinet of Ministers of Ukraine № 419 dated February 28, 2000 and the Order of the Ministry of Finance of Ukraine № 709 dated November 13, 2020.

It is worth noting that the reporting in this format works in test mode, so participants submit it in both formats: XML and iXBRL. But once we are convinced that the system is reliable, we will exclude all the duplication, and only the iXBRL format will remain, in which the financial statements will be submitted to the Financial Reporting Centre. By the way, other regulatory agencies will also have access to these reports, which should reduce the burden on companies that submit financial statements. In fact, the Financial Reporting Center should be the one stop window to submit  financial statements on the basis of IFRS.

Despite the testing mode of the system, since this summer we have been already seeing certain results. So almost 4,200 market participants out of the existing 6,000 have already set up their offices on the financial reporting system website. More than 1,100 are already submitting financial statements. We expect that by the end of the year its number will increase to several thousand.

What is the NSSMC doing now to improve the reporting process? What are the latest results of your work in this direction?

Y.Sh.: As I said, we are doing everything to implement a single  iXBRL format. Also, for the stable work of the reporting system, we will expand the server capacities on two platforms at once. When everything is perfect in terms of software, we will be able to “install” the analysis and verification module and greatly simplify the receiving process of reporting and supervision. Then the submission of reports and its analysis will become an even more understandable and clear process for both issuers and professional participants, and for the Regulator.

Source: газета “Все про бухгалтерський облік”