FRC Lab publishes a report on structured digital reporting

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27 Sep, 2022

The FRC Lab (“the Lab”) has published a report which identifies lessons learnt from the first year of mandatory structured digital reporting under the European Single Electronic Format (ESEF) Transparency Directive regulation. The review builds upon a previous early implementation study of voluntary practice conducted in 2021.

Entities admitted to trading on UK regulated markets are required to produce their annual financial reports in a structured digital format (i.e. using XBRL tagging) and submit that report to the Financial Conduct Authority for filing in the National Storage Mechanism (NSM).  The Lab reviewed a sample of UK filings and held outreach events with companies and various stakeholders (such as tagging software and service providers, design agencies and assurance providers) to gather feedback and identify areas for improvement.

While many companies had risen to the challenge of producing a report in the new digital format, the Lab noted that ‘much remains to be done’ as data quality and usability are below the level expected for companies in a leading capital market.

The Lab report focuses on three areas: highlighting what companies did well, areas for improvement, and outlining expectations of better practice to meet the needs of investors and other users. The Lab’s key findings and suggestions include:

  • Processes around digital reporting – the FRC were pleased to see many companies producing the report in the required format, providing disclosures about their governance and internal and external assurance process and using the FCA’s testing facility to address issues ahead of final submission.  However, companies can improve their review and governance processes (for example at management and board level taking greater ownership of the file and the tagging process)) and the naming structure of the files submitted to the NSM (noted as the cause of many rejected filings).
  • Usability and design – companies demonstrated an improved design in their structured reports which alleviated previous issues with fonts and images displaying incorrectly.  Some companies filed their structured report early and published this on their websites.  However, for many, improving the usability of the report and filing in a timely manner (deadlines are reverting to 4 months after extensions allowed during the pandemic) remain areas for improvement.
  • XBRL tagging – the Lab continues to observe some tagging errors.  Many companies can still improve their selection of tags, the selection of appropriate anchors for extensions and the completeness of calculations.  The Lab highlights that companies should ensure that technical accounting staff familiar with the taxonomy should be involved in the review of the tags, and encourages comparisons with peers’ tagging as a helpful check.  The report also suggests that entities start testing text block tagging of the notes in preparation for the enhanced tagging requirements effective for financial years starting on or after 1 January 2022.

While the FRC Lab report focuses on the reports prepared under the FCA’s DTR requirements for listed companies, the principles and examples can be applied to other forms of digital reporting such as digital submissions to HMRC (available since 2011) and voluntary digital reporting for Companies House filings.

The Lab report, including a one-page summary outlining improvements and better practice, is available on the FRC website.

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