The Financial Reporting Council (FRC) has issued guidance to help companies enhance their digital annual reports, after a review highlighted persistent challenges that mean investors and other stakeholders are failing to extract maximum value from them, the regulator says.

The FRC’s review, published this week, finds that basic errors identified in previous years have been resolved. However, companies still face challenges with more complex aspects of digital reporting. Common pitfalls include inappropriate use of custom tags, misapplication of tags from irrelevant accounting standards, and design issues affecting the usability of digital reports. 

Digital annual reports, which use the structured iXBRL format, have become a critical component of the UK reporting environment for listed companies since 2021, with hundreds of companies now required to report digitally by the FCA. Using iXBRL enables that information to be machine readable. 

Importance to stakeholder confidence

Annual reports and accounts underpin investor and broader stakeholder confidence in UK companies, helping to attract capital and investment that supports UK economic growth. Their digitisation has made it easier to access data to support investing and lending decisions and improve market effectiveness.

A survey of institutional investors conducted by the FRC in 2023 found that around a third were already using the company XBRL data and that more of the market would use it if tools were available to support its use. 

Tools to support use of XBRL data

In response, in March this year the FRC launched the first public trial of the FRC Viewer, a digital viewer tool that supports the use of the XBRL data across both listed and private companies. It provides a fast and free way to find, use and consider the XBRL data so businesses and investors can make more informed decisions about their operations and investments.

The FRC review analysed digital reports from FCA-listed companies across the market using tools developed as part of its Companies and Organisational Data Explorer – or CODEx – a project launched in September 2023 to investigate ways to make the XBRL data more usable. The review also used detailed assessments of 25 annual reports filed to the FCA’s National Storage Mechanism during 2024.

Efficient access to company data

Mark Babington, Executive Director of Regulatory Standards at the FRC, said: “Digital reporting plays an essential role in enabling efficient access to company data, supporting investment decisions and improving market effectiveness. While we’re pleased to see progress in many areas, our review shows there should be greater focus on specific aspects to ensure digital reports provide maximum value to investors and other stakeholders.”

The FRC has announced that it will enhance its review of digital reporting by conducting a sample review alongside its normal monitoring of annual reports. Companies with significant tagging issues may receive direct communication from the FRC, the regulator said.

Alison Bonathan, Technical Manager, Corporate Reporting at ICAEW, said: “Developments in digital reporting have the potential for widespread and significant effects on UK companies. ICAEW has previously called for the FRC to publish more guidance on taxonomies and tagging, so we are pleased that this report provides further support for companies dealing with the more complex aspects of digital reporting.” 

Digital annual reports – common pitfalls

• Use of custom extensions – custom tags/extensions being created when not necessary.
• Anchoring of extension taxonomy – where extensions are used, they may be anchored incorrectly.
• Accounting meaning – the accounting meaning of the tags does not correspond to the facts reported or does not reflect the correct standard.
• Incorrect sign or scale – amounts are reported with the incorrect sign or scale.
• Missing tags and granularity – some ‘mandatory’ tags such as ‘Principal place of business’ or ‘Domicile of entity’ are not included, or the relevant level of granularity has not been applied.
• Design and usability – many companies are also failing to put the file on their website, or limit its value by delaying publication or not providing the tags in a viewable format.

Links

Read the FRC’s review of structured digital reporting 

FRC-led ‘transformational’ digital reporting project in public beta