Sometimes the best way to understand what regulators are saying is to read their releases starting at the end and then work backwards. A case in point is the FRC’s recent document setting out insights on structured digital reporting, which is often referred to as “ESEF”. This arose from their review of 25 digital versions of UK listed company annual reports.
What the FRC save for the end of their press release and accompanying review document relates to how they will inspect digital filings going forwards. UK listed companies are put on notice that compliance with ESEF is going to be reviewed and how direct communication with listed companies may result from these reviews.
Direct communications usually mean questions being raised and, for those on the receiving end, the arrival of such questions is rarely a welcome development. The FRC and FCA have already told listed companies that they expect digital reporting to be taken as seriously as other aspects of the annual report and so news that in practical terms the FRC will be inspecting compliance with the UK’s ESEF regulations should not come as a surprise.
Common errors
The FRC’s review document sets out six common types of errors they have seen in recent filings. These resonate with our experiences. Missing tags, wrong tags, incorrect values, visual representations that don’t match the actual signed accounts all feature and in short there remain plenty of problems with digital filings. Whilst the FRC note that several basic errors have been resolved, it’s worth remembering that not very long ago, some filers weren’t submitting a digital version of their annual report at all. That means at least some of those resolved problems were really very basic indeed. All progress in the right direction is to be welcomed, but the types of errors noted in the review suggest there remains considerable room for improvement.
Probing questions
When regulators pose questions as part of inspecting a filing, there’s often a two-step approach. First a question relating to specific detail, for example in this context: “Why did you select / omit the following tags?” or perhaps “We couldn’t understand the choice of scale/currency/date context for the following tags, please could you explain?” Such questions get asked when something appears to be amiss.
However, regulators don’t necessarily stop there, because a second question can take a broader view, perhaps along the lines of “Please describe the process and controls you operate to deliver compliance with UK digital reporting regulations”.
That second type of question has a particular resonance that goes all the way to the top of listed companies. The FRC’s new Corporate Governance Code’s Provision 29 means that for 2026 annual reports the directors will be declaring material controls, including those related to compliance with regulation, to be effective.
Materiality
Almost all the information that is digitally tagged resides in the financial statements, where materiality is already defined in the context of preparation and indeed the independent audit. Theoretical debates about what is material in the context of ESEF compliance or Provision 29 can be something of a rabbit hole, but perhaps one yardstick we can all agree is that if a regulator enters communication with an issuer about an aspect of digital reporting in a filing, then it's certainly important and probably material to them. We now know the FRC are going to be reviewing compliance with the UK digital reporting regulations and they are going to follow up on significant issues.
Help and support
For each of the types of errors the FRC identified, they also provide general advice on what to do to address the risk of such errors arising. The advice is sensible but is likely to prompt the reaction “but how do we practically do that?” On this we can help. At Friend Studio we have relevant experience and offer guidance to help listed companies weave digital reporting into their programme of developing, operating and reviewing controls.
We stand ready to help, something that always starts with a conversation. So please do reach out if you would like to discuss ESEF risks and controls in light of the FRC’s review.
If you'd like to hear more from Friend, please get in touch.
