The promise of the FRC Reporting Lab

The Reporting Lab, launched on the 14th October, by the Financial Reporting Council (FRC) definitely has promise.

Conscious of the endless stream of white papers and exposure drafts addressing the effectiveness and future of narrative reporting, the Lab instead is an environment where management and investors can come together to experiment with new reporting formats that offer a tangible step forward in effective communication.

This is promising for three reasons:

• Firstly, because of the intention to bring management and investors together to experiment with such things, not just the regulators and commentators ( the ones responsible for the mountain of white papers produced to date);
• Secondly, because the ‘new’ word is being used. That suggests to us the potential for completely fresh approaches to reporting rather than more tinkering with existing systems;
• Thirdly, because the onus is on effective communication not just disclosure of information. As the FRC highlights in its brochure on the Lab (see link below), investors are frustrated by a reporting model that often leaves them struggling to understand the underlying performance of an entity. That’s despite all the information companies now pour into their annual reports!

http://www.frc.org.uk/images/uploaded/documents/frc%20lab%20leaflet%20final1.pdf

Let’s hope the FRC can achieve the outcome that it seeks. It’s surprising annual reports have existed so long without evidence “from the capital markets that a given reporting format is valued”.

But surely the Lab would benefit from more institutional investors on the Steering Group to help them do it?

The membership list contains, in the main, the same old suspects (regulators and commentators) and not enough of the members you’d hope for given the Labs aims. More of the likes of Bank of America Merrill Lynch on the team would demonstrate that the capital markets really do have an interest in improving reporting and stepping out of their closed environment to share more of the process behind the decisions they make.

But nonetheless, we’re keeping our fingers crossed that the FRC Reporting Lab shakes things up a bit. There have been way too many white papers repeating the same old ideas for improving reporting and too few corporates that have been prepared to take, even incremental, risks to produce better reports.

And if any of them is expecting different outcomes from saying and doing the same old things, they’re mad. The FRC is perhaps the first amongst the mad to do something about it.