Virtual and augmented reality could enhance future corporate reporting

Out-Law News | 22 Feb 2021 | 4:09 pm | 2 min. read

Companies could increasingly turn to virtual and augmented reality (VR and AR) tools to enhance their corporate reporting, according to new research.

A report released by the UK’s Financial Reporting Council (FRC) Financial Reporting Lab found that the current use of VR and AR in corporate reporting (28 page / 3.2MB PDF) was “limited and experimental”, with regulatory, user and cost challenges preventing short-term rollout of these technologies.

However, the FRC said in the longer term there would increasingly be a place for VR and AR, helping bridge the gap between the physical and digital to build understanding about a firm, its business model and its operations. In particular, the FRC sees a role for such technology in its future corporate reporting framework, currently under consultation.

The FRC recognised there were regulatory challenges to bringing VR and AR into the corporate reporting world, but suggested companies could consider the Financial Conduct Authority (FCA) rules on social media and relevant areas of the UK Corporate Governance Code for reassurance that any use of VR and AR was in line with available regulatory guidance, such as making sure that messages are clear, fair and not misleading.

The FRC said current approaches could be split into three levels: the adoption of ‘QR’ codes to link viewers of paper or online annual reports to external links or multimedia; VR front ends to annual reports, which only work digitally; and fully virtual reports. It said a potential level 4 could provide an opportunity for users to experience the longer-term performance, strategy and narrative of a company in an engaging and informative way.

“While the assertion that the market for augmented and virtual reality will be worth billions in the very near future still feels rather speculative, one can see the attraction for business, especially given the recent realisation that virtual events can work well,” said corporate governance expert Tom Proverbs-Garbett of Pinsent Masons, the law firm behind Out-Law.

“The report suggests that as VR becomes more widespread, a fully virtual or hybrid AGM in a virtual environment may become a possibility, although the technology is likely to outpace the necessary changes to the law and investor sentiment required to make wholly virtual meetings acceptable,” Proverbs-Garbett said.

The FRC said VR and AR could “democratise” investors’ experience and knowledge of the companies in which they are investing, giving insight into products and operations they would not otherwise have access to.

“Being able to offer 360-degree tours of a facility, or interactive VR presentations could be beneficial for investors, particularly for retail investors who would have access previously reserved for large institutional bodies. The issue will be around verification and authenticity – how will investors know that they are receiving an accurate picture?” Proverbs-Garbett said.

Proverbs-Garbett said another potential risk of the increased use of VR and AR, if used as the FRC suggests the technology might be to communicate emotive subjects such as sustainability, could be that investors would feel “sold to” rather than informed about the business. He said this meant subtlety would be required.

“A more immediate – and potentially hugely positive – use for the technology is in annual reports. Investors have long pleaded for more narrative elegance and structure. Simple additions such as the use of QR codes to facilitate cross-referencing of issues or to augment the report by linking to multimedia, would, and already does for early adopters, allow a more cohesive design to the report, even across paper documents,” Proverbs-Garbett said.

The FRC said it would consolidate a series of reports produced by the Lab focusing on how technology could change corporate reporting into a single roadmap for the future, due to be released later this year.