In recent announcements, both ESMA and the UK regulators have both highlighted problems with data in companies’ reports, and in the UK the FRC are already inspecting these.
Recently, the European-wide oversight body ESMA, has also directed national inspectors of corporate reporting to look carefully at how Cash Flow Statements are being represented in digital format.
ESMA is right to point to this area of tagging as a candidate area for inspection in 2025. Cash flows matter to investors, digital reporting is relied upon by many stakeholders and tagging cashflows is particularly difficult. At Friend Studio we see such material errors all too frequently. They are the type of errors that, if they were made in the human-readable financial statements, would leave the reader with the impression that the preparer either doesn’t care, or can’t add things up properly. Unfortunately, the errors we see in companies’ digital reports really are that bad.
Here's the root cause of the problem. When tagging service providers prepare a first draft of tagging the annual report, it's exactly like any other first draft of an annual report – it contains errors that subsequent review controls identify and remedy.
But if no one is doing a proper review of the tagging, the errors will persist right through to publication. For the tagging of cash flow statements, this has led to ESMA recommending inspectors should focus on this area.
At Friend Studio we, like other specialist reporting agencies, co-ordinate and manage iXBRL filings for our annual report clients. Logistically it makes sense. We know our clients aren’t XBRL experts, but they are responsible for checking that the XBRL tagging is correct and we see it as our role to help them. The jargon around XBRL can be alien and daunting. The rules and guidance are certainly complex. If you are not an expert, some help is usually welcomed.
That’s why Friend Studio has created a Digital Reporting Services team with a defined internal controls process. We help our clients by performing the specialist digital reviews and guide our clients through the checks that they are best placed to do, using their understanding of their own financial statements.
In this way we help our clients to address ESMA’s concerns, and align with the UK regulators’ specific instruction to companies: Please take the digital report as seriously as any other aspect of the annual report.
