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Power of Digital Financial Reporting for Greater Transparency 

Introduction to Digital Financial Reporting

More than 90% of publicly traded companies (by global market capitalization) must engage in digital financial reporting to some extent! 

With the rapidly evolving financial landscape, transparency has become more crucial than ever. It fosters confidence among stakeholders and improves the overall health of the global economy. Digital financial reporting helps improve transparency by providing tools and technology that enhance the clarity and accuracy of financial data. 

Companies that shift from traditional paper-based processes to digital systems can offer real-time, accessible insights into their financial operations. This change streamlines procedures and enhances compliance and monitoring. It allows investors, regulators, and the general public to make better decisions. 

The IFRS digital taxonomies enable the preparation and reporting of information in a computer-readable format in accordance with IFRS standards. Let’s delve deeper to understand financial reporting and IFRS digital taxonomies.  

 

Understanding Digital Financial Reports 

A digital financial report is a computer-readable, structured data format. While reports in PDF format are easily understandable by humans, they pose challenges for users in extracting, comparing, and analyzing company information. In contrast, information in a computer-readable format allows investors to compare and analyze data on a large scale efficiently. 

Owing to this primary advantage of digital financial reports over PDF format, the US Securities and Exchange Commission (SEC) introduced XBRL reporting, a computer-readable data format, for listed companies in 2009. In 2019, the SEC mandated iXBRL filing (a computer and human-readable format) for listed companies to file their financial statements. 

 

IFRS Digital Taxonomies

The International Financial Reporting Standards (IFRS) digital taxonomies provide a set of defined elements (or tags). When applied to data in IFRS-compliant financial reports, they provide the structure and classification required for computer-readable information. These taxonomies can be used with XBRL, iXBRL, and other reporting formats. They are regularly updated to stay abreast of IFRS standards. 

These tags include references to the requirements related to the IFRS standards. They enable investors and other users to: 

  1. Identify the specific requirements associated with the information 
  2. Search digital financial reports for data linked to a particular requirement 


Benefits of Digital Financial Reporting 

Increased transparency is the primary benefit of digital financial reporting. It enables businesses to raise capital at a lower cost, creating opportunities for investment. This leads to economic growth and development. Financial reporting in digital format benefits various stakeholders, including investors, companies, and regulators. The following are some of these advantages:

  1. Investors
  • Improved automation in data collection and lower search costs
  • Broader range of global investment opportunities 
  1. Companies
  • Increased access to capital, including foreign investments 
  • Decreased workload from having to submit the same information to various organizations 
  1. Regulators
  • Automated validation checks and technology-driven monitoring 
  • Improved data exchange between regulators and government agencies

 

Creating Digital Financial Reports – By Tagging! 

Digital financial reports are commonly created using a strategy known as tagging. It involves using specialized software to assign tags from a digital taxonomy to the contents of a company’s financial report. This produces a report in a structured data format, such as iXBRL. 

Companies often use one of two techniques to tag their financial reports: 

  1. An integrated technique in which tagging is built right into the company’s financial reporting management system and report design tools.
  2. A content-first strategy in which tagging begins after the company has completed its financial report in PDF format. Next, the process is outsourced to a third-party tagging agent. 

 

Artificial Intelligence and Its Role in Digital Financial Reporting 

Companies are becoming increasingly reliant on artificial intelligence (AI) to tag financial reports, an initiative that has had positive results. However, human supervision is still necessary, especially when tagging information that requires greater judgment.

Investors and other users find value in AI-driven tools that enable them to gather, sort, and generate insights from data, as well as enhance analysis efficiency.

The usefulness of AI-generated findings is contingent upon the quality and arrangement of the underlying data. If AI does not have structured data sourced from digital financial reports, it must make educated guesses on how best to organize the information contained in financial reports.

 

Takeaway 

While the shift to digital financial reporting offers various benefits, the process can present challenges. If you are looking for a trusted partner to help you transition to iXBRL reporting, DataTracks can be the right choice. With more than 19 years of experience, the company’s experts have prepared 400,000+ reports for over 28,000 clients. They stay updated with all regulatory changes to ensure compliant reports.

Contact a DataTracks professional at +1 (646) 904-8324 or email @enquiry@datatracks.com.