Government to consult on digital reporting with regulators

A report released by Deloitte yesterday on digital corporate reporting has outlined the opportunities that mandatory digital reporting could provide Australia in terms of improving transparency, boosting the economy, and supporting sustainability standards

Modelling undertaken by Deloitte Access Economics indicates mandatory digital reporting for all large businesses would grow the economy by up to $7.7 billion annually.

If digital reporting is extended to sustainability and climate disclosures, the benefit to the economy could be even greater, Deloitte said in its report titled 2023 Embracing the power of digital reporting.

Digital reporting converts financial reports into machine-readable format by assigning tags to information, which enables digital analysis to be automated across large data samples. It also provides new ways to record, measure and verify reports.

The report acknowledged while the introduction of mandatory reporting would initially increase costs and labour hours, companies should see a substantial boost in productivity over time.

“When a digital reporting mandate begins, businesses that must lodge digital reports will face an average cost of around $76,000 to participate. Beyond the first year, the incremental cost to report digitally is expected to be approximately $25,000 per year,” the report said.

Preparing financial information of digital reporting is the most substantial cost to businesses and will be significantly higher when a business prepares its first digital report due to software licensing, training for accounting staff and XBRL tagging of all information.

“Businesses may need to procure or upgrade to XBRL compatible reporting software to convert existing reports to digital format; they may also face costs in filing digital reports and engaging intermediaries and assurance providers.”

“These costs will vary by business, depending on their existing software and how they engage with third parties. Over time, software costs are expected to be marginal as XBRL tagging becomes the market standard.”

Businesses are likely to see a range of productivity gains after the initial teething period, however, with digital reporting reducing manual processes such as data checking, proofreading, footnoting and consolidating as data is created and then published across multiple sources.

“It’s estimated these manual processes make up between 20 and 30 percent of report preparation, which can take upwards of 845 hours for quarterly reports alone,” the report said.

“If the average business has six accountants who spend 50 per cent of their role in report preparation, productivity improvements could see businesses save more than $89,000 per year.”

Australia is currently lagging its global peers in relation to digital reporting practices with some countries mandating digital financial reporting for publicly listed companies or those with more than 500 employees as early as 2009.

These firms are required to submit their tax files and financial statements in either XBRL or iXBRL depending on the jurisdiction. Some countries make data from XBRL filings available online to data analysts, companies, investors and individuals.

Digital reporting is currently voluntary in Australia and is yet to see any uptake, according to ASIC.

Deloitte Australia chief executive Adam Powick said this is limiting Australia’s ability to compete internationally and keep businesses visible to overseas investors.

“We are seeing rising expectations for organisations to lead on our nation’s defining issues such as climate change and social impact, and not just to share accurate, transparent and timely financial data,” said Mr Powick in the report.

“Surging demand for ESG disclosures is adding pressure to an already strained system. It’s no surprise, therefore, that the burden of reporting is intensifying. With a 2019 Senate inquiry recommending the Australian Government make digital financial reporting standard practice, it’s clear change is now essential.”

Treasurer Jim Chalmers said digital reporting can play an important role as the government prepares to introduce mandatory corporate climate reporting.

Treasurer Chalmers said in order for the disclosure of material climate risks and opportunities by companies to be beneficial, the information reported needs to be easily accessed, understood and utilised rather than “buried away in PDFs”.

“Digital reporting clearly has a role to play here,” Treasurer Chalmers said.

“That’s why, as we go about bedding down climate disclosure – we’ll be mindful of making sure our frameworks are flexible enough to incorporate digital climate reporting in the future.”

The Deloitte report highlights the benefits of digital reporting for companies, regulators and auditors and emphasises how it could further Australia’s integration into global markets, said Treasurer Chalmers.

“I am very interested in the insights about digital reporting reducing tax avoidance in the US.”

The Treasurer noted that the introduction of mandatory reporting would need to be a carefully managed and phased process.

“In coming months, we’ll be consulting on the first draft of our broader sustainable finance strategy and one of the things we’ll be doing is asking our regulators to see how we can improve access to climate data through electronic reporting platforms,” he said.

“This might mean working through ASIC’s existing voluntary reporting process. It might mean seeing what we can do within the scope of other reporting systems.

“But what it definitely means, is that we’re up for having further discussions on where the real opportunities lie at the intersection between sustainable finance, climate disclosure and digital.”