Financial Reporting Lab: Digital Future of Corporate Reporting
The UK’s FRC Lab issued a deep dive report this week that urges regulators, companies, investors and technology providers to work together to realise fully the potential of XBRL and to respond to the challenge of a new European Single Electronic Format (ESEF) for digital corporate reporting due in 2020.
Phil Fitz-Gerald, Director of the Lab, said “We are at a turning point for the use of technology in corporate reporting. The paper-based way of reporting is likely to change with the European requirement to prepare digital financial information by 2020. The changing demands of users, supported by upcoming regulatory changes mean that boards can no longer ignore digitisation of listed company reporting. This report urges all those involved in corporate reporting to help shape the future.”
Readers will recall that the FRC is working through a range of technologies that are shaping the future of reporting. An initial study — on the “as-is” — of corporate reporting amongst UK public companies concluded that there was much to do to get the City ready for the digital age. This latest report sets out a range of criteria that preparers, regulators and users consider desirable, and assesses, in mostly non-technical ways, how XBRL and digital reporting measures up.
It is pleasing to see the extent to which the report recognises the power, flexibility and impact that XBRL and Inline XBRL can have on reporting, and there is much to commend in the direction that the FRC suggests, including the need:
- for regulators to work together to align reporting requirements and thereby reduce reporting burden.
- for executives and Boards to ensure that suitable governance is in place so that digital reports meet the needs of users. Companies need to have appropriate processes and procedures in place to manage disclosure in a digital age.
- for users to familiarise themselves with Inline XBRl and structured financial statements, to ensure that they can maximise the benefit that digital disclosure of fundamental data can deliver.
- for software vendors to work to educate the market and to continue to innovate in the delivery of high quality software that is easier, more intuitive and more accessible for the preparer community.
One point that stands out in particular: the FRC fully expects that ESEF compliant annual reports will continue to be “glossy” publications, with significant input from design agencies. Ensuring that design professionals’ activities can be embedded into the creation of Inline XBRL reports is an important consideration. Annual reports are normally subject to multiple rounds of change and collaboration across a significant number of people. Food for thought for preparers, software vendors and advisors — among others!
The report is well worth a read and ongoing debate, not just in Europe, but across the world.