Major change to digital filing for accounts planned

Sara White, Editor, Business & Accountancy Daily. Croner-i

Companies call for regulator to reduce accounting complexity and cut costs, while quality of guidance needs to improve, as FRC considers ‘substantial changes’ to filing requirements.

A number of legislative changes such as the Economic Crime & Transparency Act 2023, tighter rules at Companies House, higher company thresholds and regulatory changes after Brexit, mean that the Financial Reporting Council (FRC) is ‘in the early stages of considering significant and substantial changes regarding their digital filing requirements’.

The overhaul of digital reporting sees the FRC, Companies House, HMRC, Charity Commission and Irish Revenue all involved with the Taxonomies project, although as yet there is no timetable for rollout of new rules. It is hoped it will be developed in line with the government’s pro-growth, lighter regulation mantra.

The planned financial reporting overhaul triggered a discussion with company reporters, software developers and professional bodies last autumn to ask them for their views on the future of digital reporting.

Not surprisingly, there were overwhelming calls for less complex rules, with the majority stating that ‘the technical methodology is not as important as reducing the complexity and costs of digital reporting for preparers’.  

Some respondents recognised the value of assurance as a tool to improve trust and data quality in digital reporting but others were concerned about costs, proportionality, and the burden on smaller entities.

There was also some support for phased or proportional implementations to support the transition to digital reporting. Respondents stressed that it was important to define materiality specific to tagging and, where relevant, to ensure assurance processes use, or align with, existing auditing or assurance frameworks (eg, ISAE 3000).

Others raised concerns about alignment with global rules, and need to take into account the trade-off between meeting UK-specific meeting requirements and maintaining comparability with international accounting and reporting rules.

However, the FRC stressed that ‘although no specific decisions will be taken this year as a direct result of the discussion paper [Future of UK Digital Reporting], consultation responses will inform the relevant regulators’ current policy thinking and ongoing service development’.

The FRC’s digital reporting requirement is exemplified by the XBRL Taxonomies, which allows companies to digitally disclose information in a standardised way using extensible business reporting language (XBRL).

The use of digital reporting is meant to create ‘a clearer and more user-friendly process for regulatory reporting’, the FRC stressed, as well as improve accuracy, comparability, accessibility, and value of reported data’.

The FRC has not yet committed to any timeline for possible changes within its respective remits and will take any decisions independently of the other regulators and HMRC.

It also added that ‘any changes may also be subject to further consultation’.

Mark Babington, executive director of regulatory standards at the FRC, said: ‘The feedback clearly demonstrates that the digital reporting landscape in the UK is evolving, with stakeholders recognising both the benefits and challenges.

‘As we enter a new phase of digital reporting in 2025, the FRC remains committed to enabling efficient, accessible digital reporting that serves the public interest while supporting UK economic growth.’

Last year the FRC set up a digital reporting and taxonomies team to support more digital reporting by companies.