The Financial Reporting Council (FRC) today issues its Draft Plan, Budget and Levy Proposals for 2014/2015
in pursuit of its mission of promoting high quality corporate governance and reporting to foster investment. Last year the FRC set its three year strategy for 2013/16 and now explains how it will pursue the priorities set then, in 2014/15.
The 2014/15 Plan also explains how the FRC is preparing for a number of additional activities that the FRC is expected to be required to undertake as a result of changes in European and UK law and Competition Commission proposals for enhanced audit inspections.
Commenting on the draft plan and budget, FRC Chief Executive Stephen Haddrill said,
“Over the last year the FRC has delivered a number of key projects, including: enhanced standards for auditors and audit committees; the introduction of the ‘fair, balanced and understandable’ requirement for accounts and reports; more efficient disciplinary proceedings; the consultation on going concern and liquidity risks as proposed by Lord Sharman, and the implementation of new UK GAAP.
FRC Draft Plan
As we move forward our priority is not further change but ensuring these bed down properly. We will however, also develop the capability to take on effectively the additional responsibilities required of us. The UK benefits greatly from the effectiveness and international credibility of its regulatory framework for corporate governance and reporting. Ensuring this framework serves the needs of investors without imposing disproportionate requirements and costs is vital. We will continue to work to ensure its strengths are properly understood in the EU and major capital markets.”
The FRC has made good progress on its current priorities and confirms its three year strategy. It has identified the following key areas for specific focus in 2014/15 as follows:
FRC Draft Budget
The FRC’s monitoring and enforcement responsibilities continue to develop. The FRC will address a wide range of conduct responsibilities including: the recommendations by the Competition Commission following its inquiry into the audit market; changes resulting from the proposed EU audit directive; the growing cost of pursuing disciplinary investigations and a new requirement to review local government audits. The combined proposals of the EU, UK government and Competition Commission will add very significantly to the FRC’s workload, doubling it in those areas. The FRC’s goal is to ensure this additional work delivers a notable improvement in audit quality. It plans to make further progress in securing timely and effective outcomes from its professional discipline schemes.
The FRC will undertake a thematic review of the progress made by the major firms in improving the auditing of banks and building societies, following concerns about the pace of audit quality improvements in this sector.
The FRC will continue to promote a longer term approach to corporate governance and investor stewardship. Actions will include updating the UK Corporate Governance Code in relation to risk management and going concern; encouraging improvements in the quality of explanations where boards choose not to comply with a Code provision; working closely with investors to ensure that they have the information they need to take a long-term view of a company’s prospects and stronger encouragement of fund managers and asset owners to explain how they are engaging with the companies in which they invest.
To address the needs of investors from corporate reporting the FRC will support companies and their audit committees in responding to new requirements such as reports being fair, balanced and understandable.. It will promote the importance of greater consistency in the quality of auditing, and delivering more value to investors through auditor reporting. The FRC will promote the importance of financial statements being true and fair including through the work of the Financial Reporting Lab.
In line with its investor focus the FRC will continue work to influence EU and international developments, including the development of IFRS, and pay close attention to changes resulting from the proposed EU audit directive. The FRC will also work closely with the IAASB on its development of auditor reporting.
The FRC will seek to support smaller listed and AIM companies in enhancing the quality of their reporting and auditing and so improve confidence in the integrity of the market as a whole. This responds to concerns expressed over a number of years about the quality of reporting in this sector. It will also continue to use the implementation of new UK GAAP to improve standards of reporting by non-listed companies.
In pursuing its responsibilities for actuarial standards and regulation, the FRC will build on its work with other regulators and the Institute and Faculty of Actuaries to promote the quality of actuarial work. The FRC will also undertake a substantive review of the framework of Technical Actuarial Standards as well as putting together an actuarial risk map, based on which it will review the approach to monitoring the quality of actuarial work.
To fund its work programme, the FRC plans to increase its levies on the majority of account preparers and the professional bodies by 2.2%, with an increase of 4.8% in the rates applied to companies with a market capitalisation of more than £1 billion. There will, however, be significant increases compared to 2013/14 in the contributions from the accountancy profession to fund the FRC’s work on public interest disciplinary cases involving accountants and a significant expansion in the audit quality review programme in response to the Competition Commission and the EU.
While the reform in 2012 allowed unlimited fines to be levied in disciplinary cases, none of these monies are presently retained by the FRC and do not currently contribute to the FRC’s funding.
The FRC will undertake a number of outreach activities to gather views on its plan and budget including a public meeting on 29 January 2014. The consultation will close on 28 February 2014 and comments should be sent to firstname.lastname@example.org
Notes to editors:
The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. It sets the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work. It represents UK interests in international standard-setting. It also monitors and takes action to promote the quality of corporate reporting and auditing. It operates independent disciplinary arrangements for accountants and actuaries; and oversees the regulatory activities of the accountancy and actuarial professional bodies.
All press enquiries should be directed to: Sophie Broom, Communications Executive, on telephone: 07768502332 / 07771808464 or email: email@example.com.
Further information on the scope of the FRC’s audit monitoring work for 2013/2014 is also being published on the FRC website today.