FRC seeks input on the future of digital reporting
FRC seeks input on the future of digital reporting | AccountingWEB
FRC seeks input on the future of digital reporting by
The Financial Reporting Council has launched a cross-regulatory group to work together to ‘solve the challenges of the next phase of digital reporting in the UK’, including the impact of ‘full tagging’.
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The Financial Reporting Council (FRC) has released a discussion paper as part of a cross-regulatory group on the future of digital reporting, particularly the changes in the policy landscape since the UK left the European Union and the passing of the Economic Crime and Corporate Transparency Act, which has given Companies House new powers.
The paper discusses how each of the regulators are “in the early stages of considering significant and substantial changes regarding their digital filing requirements”.
The group comprises the Financial Conduct Authority, Companies House, HMRC and the Charity Commission for England and Wales, and with the discussion paper, it is looking for feedback on:
- the scope and extent of digital reporting requirements
- assurance of digital reports
- developments in XBRL taxonomies.
Full tagging using iXBRL
The second section of the discussion paper is a little more meaty as it comes hot on the heels of the passing of the Economic Crime and Corporate Transparency Act last year, which gave more powers to Companies House.
The Act is awaiting secondary legislation and included in that is the requirement for all accounts to be filled digitally and fully tagged using iXBRL (inline eXtensible business reporting language) as well as the removal of a paper filing option for most companies.
This section of the discussion paper explores considerations for mandatory assurances of digital tagging and the impact of “fully tagging”.
The paper outlined that the ambition of full tagging is to create a “complete and quality dataset of financial and non-financial information” that’s as similar as possible to the paper copy. But it raises questions of how the regulators can ensure that full tagging doesn’t become overly burdensome, especially for smaller businesses “while keeping pace with new reporting requirements”.
There are also questions presented in the paper around the terminology of “full tagging” because the term doesn’t necessarily mean “quality” tagging. “A set of accounts can be ‘fully tagged’ but still be incorrect.”
The paper also asks for suggestions on how tagging quality could be measured.
It explains that in order to properly define full tagging in a way that moves towards quality, the definition needs to be “measurable in a way that avoids minimal or arbitrary tagging of ‘mandatory’ information and supports the enforcement of the definition in a transparent manner”.
Meanwhile, there are ongoing discussions between HMRC, Companies House and the Charity Commission over “validations” or checks of the digital reports at their respective gateways, as part of the quality assurance process, and how they can be “harmonised” and what additional checks may be required.
The paper is seeking feedback on how regulators can balance the number of validations or checks so they’re not burdensome and hindering filers in submitting reports.
The impact of full tagging on charities
There is also consideration of the 32,000 charitable companies on the Charity Commission register who will have to file digitally with Companies House when the full tagging is mandated.
Currently charities have the choice of filing either digitally or on paper, with the majority choosing the latter option and only around 15% filing iXBRL accounts using accounting software.
The move to mandatory full tagging means those charities not filing digitally will have to purchase accounts-filing software or have their accountants do this for them.
The paper highlighted the “unique challenges” facing the sector in engaging with this technology being the impact of cost, skills gap and a lack of expertise and the need for additional support.
So the group is seeking feedback on ways the Charity Commission can make the cost and burden of the changes to the filing regime more manageable on charities and ways in which the commission can support Companies House to introduce digital reporting in an equitable way.
Shifting policy landscape
The first section of the paper responds to the policy landscape affecting digital reporting since Brexit over the past four years, where it focuses on the “structured digital reporting post EU exit”.
A key part of this first chapter in the discussion paper concerns potential alternatives to the European Single Electronic Format (ESEF) taxonomy for UK-regulated markets.
Digital reporting has been part of the UK disclosure processes since 2011, when HMRC and the FRC developed a process for companies to file their tax returns using XBRL for accounts and computations.
The breadth of digital reporting has since expanded to include disclosures to Companies House, the FCA and others. The creation of these digital reports are enabled through the XBRL project.
The FRC has been at the centre of developing and maintaining UK taxonomies for over a decade. These taxonomies make it “possible to digitally disclose information in a standardised way that is intended to reduce the burden and costs to businesses by creating a clearer and more user-friendly process for regulatory reporting”.
The group is looking for feedback from accountants, software vendors and preparers of financial reports and regulators.
“We want to hear from our stakeholders about how we can continue to develop digital reporting in the UK and further enhance the benefits it offers,” said Mark Babington, executive director of regulatory standards at the FRC. “Market intelligence, information and data are increasingly important for both decision-making and monitoring outcomes, so it is crucial that we set a strategy for UK taxonomies that will continue to deliver for business in the future.”
Those interested have until 1 November to respond to the discussion paper. Responses should be directed to.
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