14 October 2011

FRC: UK's first Financial Reporting Lab

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 reduce the need for regulatory intervention. The Lab will contribute to the Government’s attempts to simplify companies' narrative reporting requirements.

The Lab welcomes debate about such issues:

• Risk/reward: For companies, change – particularly around the reporting model – brings risk. Consequently, Boards 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 – a hub where knowledge and innovation in reporting formats is shared – the Lab will offer the potential to accelerate change to the reporting model and enhance the risk-reward equation for those involved,

• The benefits of change: Finally, it is 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 this way, the need for regulatory intervention in driving change is reduced.

The FRC would encourage participants to think broadly about the areas of corporate reporting and assurance they might wish to bring to the table. Topics might include:

• improving the usefulness of the “front end” of the report;
• improving the usefulness of the “back end”;
• integrating “front end” and “back end”;
• enhanced disclosure around business models and risk;
• rethinking the content of corporate governance reporting;
• innovating audit committee reports;
• restructuring annual reports to make better use of websites, XBRL etc.;
• revisiting the whole reporting process (preliminary announcements, analyst presentations and annual reports).

Projects that have been suggested to date include relatively simple improvements to the notes to the accounts, a review of the effectiveness of elements of narrative reporting and governance information, the potential to revisit the use of websites versus physical reports, and the materiality of specific disclosures.

Press release

© FRC