From the preparation of financial statements to the use of the information reported, digital reporting promises a combination of lower system-wide costs, greater transparency and unmatched timeliness.
While the delay in implementing the electronic filing of company accounts, proposed by the Financial Conduct Authority (FCA), risks the UK falling behind the rest of the world in this area, it also offers a sensible breathing space for managements currently beset by the challenges of Covid-19. But the virus is by no means the only good reason for delay.
As recognised in the Financial Reporting Council’s (FRC) recent, far-reaching paper on the future of corporate reporting, digital reporting has a strong role to play in addressing the need for effective communication.
Both the FCA and FRC proposals provide a timely setting to address whether today’s digital reporting is in fact effective communication. A one-year delay by the FCA gives the UK the chance to pull things around and enable digital reporting that delivers on the technology’s potential.
Remember the endgame
In 2007, the US financial regulator, the Securities and Exchange Commission (SEC), lauded the XBRL business data standard (which underpins e-filing) as ‘democratising information’. In its fervour, it even quoted the first edition of XBRL for Dummies: ‘XBRL puts business information in the hands of individual investors. Now anyone can have instant access to accurate information and comparative analyses that previously only sophisticated research specialists could have.’
Digital reporting is both inevitable and desirable, but at this important juncture we need to take a new path
The previous year, the SEC had also announced that XBRL-based analysis software would be available free of charge.
Yet the digital reporting world seems to have lost track of some of these original goals. Various data intermediaries have been able to save costs or make money, but many of the benefits and tools are still located within sophisticated research products or behind paywalls. It’s time to get back some of that lost inspiration.
Ask new questions
There needs to be a shift in the questions about digital reporting that are currently being asked, studied and answered. Corporate reporting is about effective – that is, useful and usable – communication. So the questions need to start with usefulness and usability.
We could begin by asking ‘what are you trying to say?’ and ‘how could you best say that digitally?’ rather than ‘how can you shoehorn your communication into a specific technology that may or may not clearly reflect what you wanted to say?’
We should also look for answers to the following questions:
- Is it easy to input, extract and understand the information – ie is the communication flowing?
- How will auditors verify the communication?
- How much manual intervention is required?
- How sophisticated do systems need to be to make use of the data?
- Is the data today truly useful and usable to an individual investor? Is it actually democratised?
- Technology needs to serve effective communication, not just answer a call for going digital.
Lead, don’t follow
The digital reporting and regulatory communities always invite preparers, auditors and investors to the table, but frontline investors often don’t show up. In public discussions their voices are often indirectly represented via data intermediaries who directly benefit from the technology. And while some preparers do show up, they are generally reacting to solutions put forward by others. Preparers, auditors and frontline investors need to take the lead.
Digital reporting must pivot from being a conversation between the technologically savvy to a mainstream debate
They must move away from simply sitting on panels or committees, and instead be the ones handing out the invitations, hosting the panels, leading the discussions and driving the future.
Of course, those with expertise in standards, regulations, data and technologies should be at the table, but they shouldn’t be designing the only path forward. Instead, they should focus on enabling the goals of those who need to communicate and those who need the information that is communicated (and verified).
Change the conversation
Digital reporting must pivot from being a conversation between the technologically savvy to a mainstream debate. Conversations need to move from generalities about benefits to specifics about what’s holding XBRL back from fulfilling all its original promise. The emphasis must shift from data to communication.
Now is crunch time for frontline accounting and investment professionals to step up and, with the express support of the FCA and FRC, help shape the digital reporting of the future.
A year isn’t a long time, but it isn’t too late. If the FCA, FRC, preparers and investors are willing to embrace the challenge, we still have time to learn, adapt and deliver on the original promises of a digital future.
The FRC’s report A matter of principles – the future of corporate reporting describes a new model and roadmap for corporate reporting through 2030.
See also the Financial Reporting Council’s 2017 report, Digital future of corporate reporting, which outlines many important unresolved questions that should be addressed.