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FRC Lab calls for collective action to promote digital corporate reporting
A new report from the Financial Reporting Council’s Financial Reporting Lab (the Lab) (PDF) concludes that XBRL (eXtensible Business Reporting Language) is an important technology in the path to digitisation of company reporting. However, since the potential benefits of XBRL for listed company reporting are not guaranteed, the Lab 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.
XBRL improves the efficiency of financial reporting by facilitating the analysis of financial data. It is used for corporate reporting purposes in more than 60 countries around the world, but there is currently no requirement to use it for consolidated financial statements in the UK. With the introduction of ESEF this is likely to change.
The Lab considered how XBRL could be used in the production, distribution and consumption of listed company annual reports. The Lab identified gaps between the characteristics that users and preparers desired from digital reporting and the expected implementation of XBRL for listed company reporting. To close these gaps, the Lab recommends a series of actions for regulators, technology companies, preparers (listed companies) and investors.
The Lab recommends that a single committee be formed with representatives from regulators and Government to drive digital reporting in the UK by;
- Exploring the potential benefits of data reuse in the UK, and where needed, align reporting requirements;
- Ensuring that regulators work together to adopt ESEF, or UK alternative, to provide better quality corporate reporting data; and
- Engaging with companies and investors about this work.
The FRC fully supports the recommendation in the report to form a committee to help promote digital reporting in the UK and will look into how this can be taken forward.
Other recommendations in the Lab’s report include:
- Technology companies need to focus on producing tools and packages for non-technical users who create, distribute and consume XBRL data;
- Companies should develop a strategy at Board and audit committee level to discuss how they implement XBRL; and
- Investors should engage with regulators, auditors/assurance providers and companies so that XBRL data is of value to the investor community.
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.”
Notes to editors:
- The Financial Reporting Council’s (FRC) mission is to promote transparency and integrity in business. The FRC sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate reporting; and operates independent enforcement arrangements for accountants and actuaries. As the competent authority for audit in the UK, the FRC sets auditing and ethical standards and monitors and enforces audit quality.
- Since 2013 the FRC has been responsible for the XBRL electronic tags (taxonomies) used in the UK to enable accounts to be filed electronically.
- The Financial Reporting Lab was set up and is funded by, the FRC as a hub, bringing together companies and investors to support improvement and innovation in reporting. More information about the Lab’s work can be found at frc.org.uk/Lab.
- In May 2017, the Lab published its first report on this project which articulated a framework of 12 characteristics that sought to define the needs of those producing, distributing and consuming corporate information. This report on XBRL is the first of a series of technology deep dives. In this, and each subsequent deep dive report, we use our framework as a benchmark for assessing both where technology can best add value and where it will struggle to meet users' needs. Future reports will cover Blockchain, Artificial intelligence and Augmented/ Virtual Reality.
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Alana SinnenCommunications Manager
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