Corporate reporting – FRC review of structured digital reporting

The Financial Reporting Council (FRC) has published the finding of its latest review of digital reporting, which sets out recommendations for companies on best practice.

Under the Transparency Rules, since financial years beginning on or after 1 January 2021, listed companies have been required to ensure that their annual reports are produced in XHTML, a structured electronic format, and to tag their financial statements in accordance with an approved taxonomy (for more information on these requirements, see our snapshot here).

Since the introduction of the requirements, the FRC has reviewed compliance by companies and produced reports to help companies improve. In its latest report, the FRC notes that a number of basic errors and issues identified by the FRC in previous reviews have been resolved. There are still areas of concern, including:

• Use of custom extensions – although there are approved taxonomies for tagging, companies are allowed to create their own custom tags – "extensions" – if the taxonomy does not cover an item. The FRC says that many companies are creating extensions unnecessarily when items could have been adequately covered by a tag in the taxonomy. This makes it harder for users to compare data.
• Anchoring of extensions into taxonomy – when companies create extensions, they need to anchor these back into the approved taxonomy (as this connects the extension to an IFRS concept, which helps users understand the nature of the extension). The FRC found inconsistencies in anchoring, which again makes it harder for users to analyse and compare data.
• Missing tags and granularity when tagging notes – companies use block tags in the notes to the accounts, where a single tag is used to cover a section or paragraph which may relate to a number of topics (rather than the detailed tagging used in the figures in the financial statements). The FRC notes that companies are sometimes not tagging the notes with sufficient granularity.

The report also states that in the future when the FRC identifies issues when reviewing annual reports, it may write directly to the companies in relation to the issues identified.