UK’s First Financial Reporting Lab Launched
The Financial Reporting Council has launched the “Financial Reporting Lab” which brings together companies and investors to identify practical solutions to today’s reporting problems, such as the length and complexity of reports and accounts.
It is the first time the Lab concept has been used to help solve corporate reporting problems which, for many years, have been the frustration of investors and companies alike.
The Lab’s participants will be drawn from a diverse range of sectors and will include investors and representatives from a wide range of companies.
The FRC hopes the Lab will take a large part of the cost and risk out of the process of innovation and reduces the need for regulatory intervention. The Lab will contribute to the Government’s attempts to simplify companies’ narrative reporting requirements.
Stephen Haddrill, chief executive of the FRC, said: “For over a decade companies, investors and regulators have raised concerns about the increasing complexity and length of company reports. Initiatives from the FRC, such as Cutting Clutter, set the ball rolling. The creation of the Lab moves the debate on from theory to practice.”
The Financial Reporting Lab offers an environment where corporates and investors can come together to develop pragmatic solutions to today’s reporting needs.
The Lab encourages management and investors to experiment with new reporting formats that offer a tangible step forward in effective communication.
There are a number of ways the Lab will help.
One is a forum for exchange. While management meets with analysts and investors on a regular basis, the need to discuss business trends typically outweighs a review of the effectiveness of their corporate reports or audit reports.
The Lab would offer a “space” for such discussions.
Another is regulation. Respondents to recent consultations have suggested that the ability to enhance and streamline reporting today is in part hindered by the regulatory construct and environment.
Firstly, some have identified duplication in the various codes and reporting standards, which results in repetition, a separation of related financial and non-financial information and an interrupted narrative flow in annual reports.
Secondly, there is a concern amongst some in the reporting community that innovation in reporting format and content will not be well received by regulators and auditors. The Lab welcomes debate about such issues.
By having representatives of both the regulatory authorities and the audit community at the table, such issues can be addressed directly.
Still, another is risk reward. For companies, change – particularly around the regulatory model – brings risk. Consequently, they often believe it easier and safer to stick with the status quo.
From the investor perspective, helping to assist in the development of reporting is seen as a distraction and a costly use of time. By providing a hub to support the process of innovation, the Lab will offer the potential to accelerate change to the reporting model and enhance the risk-reward equation for those involved.
Finally, there is the benefits of change, or the intention to use the work of the Lab to provide evidence to the corporate world from the capital markets that a given reporting format is valued. In so doing, the need for regulatory intervention in driving change is reduced.