The U.K’s Financial Reporting Council (FRC) appears to have survived the bonfire of the quangos (US translation: withdrawal of federal funding) and has even released a new report of its own. Yet the flames still beckon because from an innovation perspective, Effective Company Stewardship: Enhancing Corporate Reporting and Audit could be considered a little like Macbeth’s rather jaundiced view of life - full of sound and fury, signifying nothing.
But maybe that’s too harsh. For buried in the report is the intriguing proposal of a ‘financial reporting lab’ where amidst the bubbling of loosely connected financial and non-financial crucibles some hunchback bookkeeper with bulging eyes can be glimpsed reaching into a giant cauldron and lifting out a steaming new Annual Reporting XBRL taxonomy with the immortal words: “Master…It lives!”
A key proposal of the FRC report is that:
Companies should take advantage of technological developments to increase the accessibility of the Annual Report and its components.
Sounds good so far, but less so when this is qualified further in the report as:
Access to the information in Annual Reports would be improved if companies were to:
• provide access to Annual Reports and accounts through the web in a form that enables them to be searched quickly and easily;
• adopt common reporting languages such as XBRL if that would facilitate engagement; and
• be relieved of the burden of producing Annual Reports and accounts in printed form which is a drain on the resources they have for developing better methods.
It’s as if the FRC decided to snuck in XBRL between ‘stick a PDF on the web’ and ‘why bother printing those expensive glossy reports’. Yet moving to XBRL-based annual reporting is a slightly more demanding option than either of the store-bought white bread proposals it is sandwiched between.
The FRC report also reflects the recent fascination with ‘narrative’ reporting, a practice that I consider to be virtually synonymous with corporate storytelling (or as it known here in the UK – ‘fibbing’), which is something we could do with less of rather than more. In the end it’s the data that counts, not documents infused with a narrative spin that is often based on the Marine Corps Jessup principle: The Truth? You can’t handle the Truth!
Especially when, as the FRC report rightly points out, a lot of data is missing anyway – something that tends to make the truth quite tricky to establish.
Apparently, in relation to annual reporting, the Accounting Standards Board (ASB) found poor information in a number of areas relating to the requirements of the (UK) Companies Act 2006 – such as some 32% of companies not complying with reporting of non-financial indicators. No wonder some 34% of reporting companies were also judged to be ‘falling short’ when it came to reporting Corporate Social Responsibility. No non-financial indicators = No Habla CSR…
In the not too distant future, the majority of consumers of annual reports will be systems not humans. Of course human analysts will still be needed to construct analytical interpretations from the narrative and numbers presented. But the financial analysis systems that are the real target audience of next-generation of annual reports are designed to look for patterns in order to generate predictions and the current soooo 2oth century document-centric approach to annual reporting just won’t cut it.
So I hope that when the FRC set up their reporting lab they bear this in mind and engage with the XBRL bodies to help to define an Annual Report taxonomy to really kick-start nextgen annual reporting in the UK. But one word of advice: Just don’t have the lab managed by anyone whose name ends in ‘stein’.
