HC 1450
HC 1450
Financial Reporting
Council
For the period 1 April 2022 to 31 March 2023
Presented to Parliament by the Secretary of State for Business and
Trade by Command of His Majesty
Ordered by the House of Commons to be printed on 19 July 2023
Company number 02486368
This publication is available at www.gov.uk/official-documents.
Any enquiries regarding this publication should be sent to the
Financial Reporting Council Limited, 125 London Wall, London, EC2Y 5AS
ISBN 978-1-5286-4136-4
E02916147 07/23
Printed on paper containing 40% recycled fibre content minimum
Printed in the UK by HH Associates Ltd. on behalf of the Controller of His Majesty’s
Stationery Office
FRC | Annual Report and Accounts 2022/23 5
Contents
Strategic Report 7
1. Our Purpose 8
2. 2022/23 highlights 10
3. Statement by the Chair of the FRC 12
4. The FRC at a glance 14
5. Our business model 15
6. Chief Executive's report 17
7. Strategic priorities for 2023/24 37
8. Key Performance Indicators 41
9. Environmental, Social and
Governance (ESG) 43
10. Our people 44
11. Section 172 and
stakeholder engagement 52
12. Environmental impact 54
13. Ethics and compliance 60
14. Managing complaints to the FRC 63
15. Financial review 69
16. Risk management 74
Governance 86
17. Chair's introduction 87
18. Governance and transparency 88
19. Our Executive Committee 91
20. Our Board and committees 96
21. Audit & Risk Committee report 108
22. Conduct Committee report 112
23. People Committee report 114
24. Regulatory Standards and Codes
Committee report 116
25. Supervision Committee report 118
26. Remuneration framework 120
27. Directors' report 124
Strategic Report
FRC | Annual Report and Accounts 2022/23 7
FRC | Annual Report and Accounts 2022/23 7
FRC | Annual Report and Accounts 2022/23 8
1. Our Purpose
The purpose of the FRC is to serve the public interest by setting high standards
of corporate governance, reporting and audit, and by holding to account those
responsible for delivering them.
Objectives
Set high standards in corporate governance and stewardship, corporate reporting,
auditing, and actuarial work and assess the effectiveness of the application of
those standards, enforcing them proportionately where it is in the public interest.
Promote improvements and innovation in the areas for which we are responsible,
exploring good practice with a wide range of stakeholders.
Influence international standards and share best practice through membership of
a range of global and regional bodies, and incorporate appropriate standards into
the UK regulatory framework.
Create a more resilient audit market through greater competition and choice.
Transform the organisation into a new, high-performing, robust and independent
regulator, acting in the public interest.
FRC | Annual Report and Accounts 2022/23 9
Our remit
FRC Lab Report:
Digital Security Risk Disclosure
August 2022
Financial Reporting Council
Financial Reporting
Council: 3-Year Plan
2022-25
March 2022
Financial Reporting Council
Professional
Judgement Guidance
June 2022
Thematic Review:
Discount Rates
May 2022
May 2021
July 2022
Research study
The influence of the UK Stewardship
Code 2020 on practice and reporting
FRC | Annual Report and Accounts 2022/23 10
2. 2022/23 highlights
April
• Publication of the FRC
3-Year Plan 2022-25
• Publication of the Audit
Firm Governance Code
May
• Thematic Review of
Discount Rates
June
• Guidance on the
Strategic Report
• Responses to the International
Sustainability Standards Board
(ISSB) on International Financial
Reporting Standards (IFRS) S1
and S2 exposure drafts
• Guidance on professional
judgement
• Joint Forum on Actuarial
Regulation (JFAR) report, The
Science of Climate Change
July
• Research study on
the influence of the
Stewardship Code on
practice and reporting
• Our Position Paper following the
Government Response to the 2021
White Paper
• Annual Audit Quality Inspection
(AQI) results
• Annual Report and Accounts 2021/22
• Annual Enforcement Review (AER)
August
• FRC Lab reports on
digital security risk
disclosure and Environmental, Social
and Governance (ESG)
data production
• Key facts and trends in the
Accountancy profession
• Auditor reporting: a review of
current practice
FRC Lab Report:
Net zero disclosures
October 2022
Review of Corporate
Governance Reporting
May 2021
November 2022
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Tier 2 and Tier 3 Audit Firms
December
2022
February 2023
Thematic Review:
IFRS 9 Banking Audit Methodology
and its Application
FRC ESG Statement of
Intent: What’s Next
January 2023
Financial Reporting
Council: Draft 3-Year
Plan
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December 2022
FRC | Annual Report and Accounts 2022/23 11
October
• FRC Lab report on net
zero disclosures
• Annual review of corporate
reporting 2021/22
• AQI results of major local audits
November
• Review of Corporate
Governance Reporting
2022
• Professional oversight report 2022
• What Makes a Good... Environment for
Auditor Scepticism and Challenge
December
• AQI and Supervision
report of Tier 2 and 3
audit firms
• JFAR risk perspective
• What Makes a Good... Annual
Report and Accounts
January
• ESG Statement of Intent:
What’s Next?
February
• Stewardship Code signatory
list update
• Thematic Review: IFRS 9
Banking Audit Methodology
and its Application
March
• Technical Actuarial Standards
(TAS) 100 final standard
• Draft 3-Year Plan 2023-26
• Our Approach to
Audit Supervision
September
• Stewardship Code signatory
list update
• FRC Lab report on structured
digital reporting
• Research on navigating
barriers to senior leadership
for people from minority
ethnic groups in FTSE 100
and FTSE 250 companies
FRC | Annual Report and Accounts 2022/23 12
3. Statement by the Chair of the FRC
I am pleased to present the Financial Reporting Council's 2022/23
Annual Report and Accounts. Over the course of the year, we
have made significant progress both in our governance as an
organisation and in our continued work to raise standards of audit
quality, corporate reporting and governance to the benefit of all of
our stakeholders.
When taking on the role of Chair in February 2022, four new Non-
Executive Directors (NEDs) also joined us, making a significant
contribution to a revitalised, expert Board. That allowed us to restructure
our five Board committees, and with the insights and experience we
have all gained over the last year, I am pleased to report that the
governance of the FRC is today in good and settled hands.
Our Transformation Programme, in preparation for the long-awaited
legislation to create the Audit, Reporting and Governance Authority
(ARGA), continues at pace, and we have reached a significant number
of new milestones during the year. Like many of our stakeholders, we
too are frustrated at the number of delays to the required legislation
being tabled in Parliament and hope that this will happen as expected
later this year. The FRC is a vastly different regulator to that of four
years ago, and it has been pleasing to hear from our stakeholders that
our role as an assertive regulator is having the impact and influence
that we consistently aim for. There’s a lot for us to be proud of as an
organisation. But there’s still a lot to be done.
Since our last Annual Report and Accounts, we have seen the
publication of the Government Response by the Department for
Business, Energy and Industrial Strategy (BEIS), now the Department
for Business and Trade (DBT). This marked a key milestone in our
journey towards ARGA and provided us with a clear roadmap from
which we outlined an extensive workplan in response to the proposals
taken forward from the 2021 White Paper, Restoring trust in audit and
corporate governance. As we await the legislation to create ARGA, the
work outlined in our Position Paper published in July 2022 will continue
to support financial stability and high standards in corporate Britain,
helping to underpin the UK’s position as a key investment destination.
After serving with distinction as a Director since 2015, John Coomber,
our Senior Independent Director, will be standing down in July when his
mandate expires. I want to thank him for his valuable contribution to
the organisation over the last eight years, in particular recognising that
during a time of tremendous change in the Board, he provided essential
continuity and support to the Board and the wider organisation. John
will be succeeded as Senior Independent Director by Clare Thompson,
and as Chair of the Supervision Committee by Ruwan Weerasekera.
Sir Jan
du Plessis
Chair
" The
Government
Response
marked
a key
milestone in
our journey
towards
ARGA"
FRC | Annual Report and Accounts 2022/23 13
In February, we announced Sir Jonathan Thompson’s resignation as
Chief Executive Officer (CEO), in order to take on the role as Chair of
HS2. I would like to express my sincere gratitude to him for all he has
achieved at the FRC over his almost four years here. The organisation
I chair today is unrecognisable compared to that which Jon joined in
2019, not least of all because of his leadership in transforming the FRC
into a modern, more assertive regulator with impact and influence. We
are all grateful for his work and achievements over the last four years. I
am confident that the FRC is now well-placed to continue this work as
we jump the remaining hurdles to become ARGA.
Jon is working out his notice period until 31 July 2023 on a part-time
basis and, working with DBT, we are conducting an extensive search for
his successor.
In order to provide further support to Jon and the wider organisation
during this transition period, Sarah Rapson has taken on the role of
Deputy Chief Executive, in addition to her ongoing role as Executive
Director of Supervision. I am pleased to report that she has taken on
these additional responsibilities with great energy and enthusiasm.
We must continue our whole system approach to reform to deliver
the best results, and that includes legislation. We have seen significant
progress on audit quality, but that needs to be universal across all audit
firms to deliver the best outcomes. It is of utmost importance that we see
the dedication to this work continue as we keep on holding firms to these
high standards, encouraging them to do the best for their stakeholders.
Our work as an improvement regulator also continues across the board,
recognised in our highlights from the last year, and continuing in the
next with major consultations such as the Corporate Governance Code
review, beginning in May. Our work will maintain the highest possible
standards for audit and corporate governance.
Finally, I need to acknowledge the incredibly important work of our ever-
growing workforce at the FRC. I wish to thank them all for their hard work,
commitment and professionalism as we continue on our exciting and
important journey towards ARGA. I have no doubt that, as the FRC, we
will continue to deliver on the expectations of our many stakeholders and
that, when we become ARGA, we will step up to the plate, confident in
the knowledge that we are well qualified for the job at hand.
Sir Jan du Plessis
Chair
" We will
continue
to deliver
on the
expectations
of our
stakeholders"
14FRC | Annual Report and Accounts 2022/23 FRC | Annual Report and Accounts 2022/23 14
4. The FRC at a glance
The FRC’s Board and Executives believe strongly in the important contribution our
activities make towards improved outcomes for all stakeholders in our ecosystem: greater
transparency, increased trust in UK markets and an effective market that can lead to lower
cost of capital for corporate companies. This is important for stakeholders, large and small,
across the country, from workers and pension holders to institutional investors and large
corporate organisations. For more about our stakeholders and how we engage with them,
see page 52.
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Building trust brings
better outcomes for
all stakeholders
FRC | Annual Report and Accounts 2022/23 15
System Partner
Educating, collaborating,
and supporting continuous
improvement
Supervisor
Supervision and monitoring
of requirements, culture
and behaviours
Facilitator
Encouraging good
practice through
structured engagement
Enforcer
Investigating conduct and
applying proportionate
sanctions and directions
• Lead the development of public and
technical policy, informed by influential
stakeholder engagement.
• Set Codes, standards and guidance that
support high-quality corporate reporting,
corporate governance, and stewardship,
audit, and actuarial work.
• Drive innovation in the public interest for
our stakeholders.
• Influence international standard setting
and collaborate with other regulators.
• Drive the application of high standards in
corporate reporting, audit and actuarial
work through proportionate and risk-
focused enforcement action where it is in
the public interest.
• Promote improvements and innovation in
these areas by communicating clear and
impactful messages through enforcement
cases and publications, and through the
setting and monitoring of effective non-
financial sanctions.
• Deliver our statutory responsibilities for
corporate reporting review and act as
the Competent Authority in respect of
statutory auditors and the audit market.
• Monitor the application of corporate
reporting and audit standards, and
hold to account those that fail to meet
these standards.
• Promote improvement and innovation in
corporate reporting and audit.
• Promote a more resilient audit market.
• Support the regulatory divisions by
providing a robust and resilient framework
and expert support for the delivery of the
FRC’s wider objectives.
• Support the FRC’s ongoing work as an
improvement regulator by acting as
a trusted partner and adviser to the
business, and through our ongoing
partnership with DBT.
Regulatory Standards
Enforcement
Supervision
Corporate Services
5. Our business model
What kind of regulator is the FRC and will ARGA be in future?
The now integrated four faces of regulation, first introduced in our 2022-25 3-Year Plan,
demonstrate how the FRC, and in the future ARGA, will regulate. As part of our work as an
improvement regulator, the four faces provide a balanced yet assertive approach and allow
us to maintain alignment with our core purpose: to serve the public interest by setting high
standards of corporate governance, reporting and audit, and by holding to account those
responsible for delivering them.
What we do
The
Four
Faces
16FRC | Annual Report and Accounts 2022/23 16FRC | Annual Report and Accounts 2022/23
Influential
Through technical expertise and thought
leadership, our people innovate to drive
change. They develop themselves and
others, speak up, value diversity and
support others to do the right thing.
Fair
Our people act in a professional,
proportionate, consistent manner
to ensure robust standards of
decision-making and delivery,
both internally and externally.
Effective
Our people are decisive, accountable
and collaborative when working
with others to share information and
experiences to improve outcomes.
Independent
Our people challenge ideas,
make evidence-based decisions
and always act with
integrity.
Our Values
FRC | Annual Report and Accounts 2022/23 17
6. Chief Executive's report
Our journey to become ARGA has continued as we have progressed well
beyond the recommendations of the three independent reviews and
implemented many without legislative backing. It has been somewhat
frustrating that legislation has not yet been passed more than four years
after Kingman, and we continue to work with Government on preparing
the legislation for when parliamentary time allows. The work laid out
as part of the Government’s response to the White Paper, Restoring
trust in audit and corporate governance, continues at pace as many of
the Transformation Programme workstreams become part of the FRC’s
business as usual on a voluntary or negotiated basis.
The ongoing Corporate Governance Code consultation, the introduction
of our Scalebox and Audit Sandbox initiatives, and our work on actuarial
policy and local audit demonstrate our ongoing drive to changes we can
make using our existing powers and remit while we wait for the crucial
legislation needed to fully implement reform. These have built on our
new approach to supervising audit firms and a stream of ‘What Makes a
Good…’ publications to help those we regulate to learn from each other
and best practice.
Our work over the last year has seen some essential next steps to
protect and advance the interests of our stakeholders, including:
• The Corporate Governance Code consultation starting in May,
looking at how we can best improve the Code and incorporate
elements of the Government Response of May 2022, particularly
around internal controls and assurance frameworks.
• 'Audit Committees and the External Audit: Minimum Standard',
designed to increase performance across Audit Committees in the
FTSE 350, ensuring a consistent approach and supporting a well-
functioning audit market.
• The introduction of a Memorandum of Understanding (MoU) with the
Department for Levelling Up, Housing and Communities (DLUHC),
allowing us to take on the role of shadow system leader for local
audit until ARGA is introduced via legislation.
Sir Jonathan
Thompson
Chief Executive
Officer and
Accounting
Officer
FRC | Annual Report and Accounts 2022/23 18
• The ARGA funding model, considering how the new regulator will
be funded on a statutory basis to allow it to continue to play a
crucial role in the UK framework for corporate governance, corporate
reporting, audit, accountancy and actuarial work.
As well as this, we have also been working with Government to consider
our next steps as an organisation in relation to location. When the
decision was made to create ARGA, the Government outlined that
its headquarters should sit outside of London and the South-East, in
accordance with Government policy on levelling up and providing
opportunity across the UK. The location for our future headquarters
has been identified as Birmingham. Decision-making around timing
is ongoing and we will update stakeholders of the outcomes of these
discussions. At the same time, we have also been reviewing the location
of our London office as our lease at 125 London Wall comes towards its
end in 2024. Regardless of a second location, it is critical that we retain a
London presence given the location of a majority of our stakeholders.
While I am now moving on to a new challenge and leaving the FRC,
I have every confidence in the effective, impactful regulator I leave
behind. With the leadership of Sarah Rapson as Deputy Chief Executive
in the interim, and the dedication of the nearly 450-strong workforce
the organisation has in place, I know that the creation and evolution
of ARGA will be inevitable once legislation is in place. I am proud of
the work I have done as part of the FRC, and look forward to seeing its
every success in the future.
Sir Jonathan Thompson
Chief Executive Officer and
Accounting Officer
"I have every
confidence in
the effective,
impactful
regulator I
leave behind."
FRC | Annual Report and Accounts 2022/23 19
A note from Sarah Rapson, Deputy Chief Executive
When taking on the role of Deputy Chief Executive in February 2023, as
well as my existing duties as Executive Director of Supervision, I did so
knowing that we were well on our way to ARGA via the transformation
journey that Jon has overseen in his more than three years at the FRC.
While DBT undertakes the search for a new, permanent Chief Executive,
I am proud to take on this important role. I will lead the FRC in its work
as an assertive, proportionate regulator, seeking to raise the quality
of audit and corporate governance and reporting in corporate Britain.
Assertive yet proportionate regulation is vital for the UK to maintain and
develop its position as a world-leading international finance centre.
I want to thank Jon for the work he has done and overseen during his
tenure here and look forward to the future of the FRC and ARGA. This
year, we will continue to push for the much needed legislation to be
implemented, allowing us to fulfil our duties as the new regulator and
continue our work on the four faces of regulation. While we have had to
reprioritise some work while we await the legislation from Government,
we will enhance our existing regulatory functions to deliver the best
possible outcomes, deliver on the reform programme wherever possible
under our existing powers, and maintain the high standards that
stakeholders around the world have come to expect in the UK market.
Smarter, better regulation supports growth.
Under the strategic and experienced leadership of Sir Jan du Plessis as
Chair, and with our new CEO expected in place in the course of the next
year, I am confident that we will continue to deliver in the best interests
of stakeholders this year and beyond.
Sarah Rapson
Executive
Director of
Supervision
and Deputy
Chief Executive
Sarah Rapson
Executive Director of Supervision
and Deputy Chief Executive
20FRC | Annual Report and Accounts 2022/23
Highlights from 2022/23
FRC | Annual Report and Accounts 2022/23 20
Highlights from 2022/23
254 263
443
100
%
150
81
%
139
38
80
confirmed successful
signatories to the
Stewardship Code as of
February 2023
reviews opened
by CRR
members of staff, up 52
since 2021/22
of complaints received and
dealt with by the Central
Complaints function met
the service level agreement
Audit Quality Review
inspections completed
of staff proud to work
for the FRC
live FRC projects
in 2022/23
open investigations
podcasts and
webinars produced
FRC | Annual Report and Accounts 2022/23 21
Regulatory Standards
The Regulatory Standards division develops Codes, standards and guidance
to support the delivery of high-quality work and innovation. This is done
through direct policy work in the UK, and influencing the development
of international standards. This is supported by thought leadership,
bringing insight into the teams and making optimal use of the feedback
loop that comes from monitoring and regulatory activities undertaken
by the Supervision and Enforcement divisions. Our work is also informed
by the work undertaken by the FRC’s Stakeholder Engagement and
Corporate Affairs team in their ongoing work with our broad spectrum
of stakeholders in the UK and globally, in addition to divisional-specific
work on consultations, roundtables and educational workshops.
A number of areas of our work stemming from the Government’s
response to the White Paper, issued in May 2022, have seen significant
progress over the last year. Our review of the Corporate Governance
Code, launching via consultation in May, will establish a UK regime
for reporting on the effectiveness of internal controls, and also look
at interactions with the new resilience statement, audit and assurance
policy, wider ESG reporting obligations on Boards and the Audit
Committee standards on which we have consulted.
The division is at the heart of our development of regulatory policy
which, when done properly, means better outcomes for stakeholders
– that includes workers, suppliers, investors, pensioners and society as
Case study: supporting better pensions
information through our actuarial policy work
The Government Response set out a foundation on which we have
worked to promote high-quality and reliable actuarial information in
the UK.
In early 2022, we consulted on proposed changes to Actuarial
Standard Technical Memorandum (AS TM) 1. After carefully
considering the feedback received, we published a revised standard
in October 2022, which supports reliable projections for pensions and
increases consistency between pension providers. These necessary
changes reflect the new environment that will exist once pensions
dashboards display Estimated Retirement Income illustrations,
and continues to support the Government’s work on the pensions
dashboard initiative.
Information about the new AS TM1, effective October 2023, can be
found on the FRC website.
" A number
of areas of
our work
have seen
significant
progress
over the last
year"
FRC | Annual Report and Accounts 2022/23 22
Case study: FRC Technology and
Digital Steering Group
Technology and its use in the areas for which we have regulatory
responsibility is increasingly at the forefront of discussions between
regulators, standard setters and practitioners. As a result, we created
the FRC Technology and Digital Steering Group with members from
across the organisation, which:
• Builds upon our position as a leading, improvement regulator
that understands and can effectively respond to the impact of
technology on our regulatory activities.
• Identifies opportunities where technology is likely to lead to
significant quality improvements in the areas for which we have
regulatory responsibility.
• Ensures that technology-related activities undertaken across the
FRC link to and support our overall strategy.
• Identifies areas of concern early, responds appropriately and equips
us for future reviews and potential enforcement action.
• Ensures that any guidance we produce is stakeholder focused and
addresses real issues emerging in practice.
a whole. We want to emphasise our role as an improvement regulator,
and concepts such as the Audit and Assurance Sandbox give a
collaborative and innovative approach to developing solutions for the
audit sector. Our Competition policy paper also set out our approach
to meeting the responsibilities we expect to be assigned through
legislation. Stakeholders are able to use our examples of best practice
work around stewardship, corporate governance, and via the FRC Lab,
and we continue to push to the forefront of emerging topics around
data and technology, as well as our ongoing work on ESG.
Aligned with this, we are also making better use of the FRC Lab to
address bigger thematic matters. Over the last year, the Lab has
undertaken policy-driven research looking at materiality in practice,
net zero disclosures, digital security risk disclosure, structured digital
reporting and ESG data production, distribution, and consumption by
preparers. A better understanding of materiality is critical to ensure that
companies can report better information to support decision-making
and not just more information that does not meet stakeholder needs.
The FRC’s ESG and Climate Group continues to play a key role in
ensuring that all climate-related activities we undertake link directly
to our overall strategy. We continue to ensure messaging for all
" We want to
emphasise
our role as an
improvement
regulator"
FRC | Annual Report and Accounts 2022/23 23
stakeholders is clear and consistent, building our position as a leader
in the important debate about how our stakeholders should respond
to the various disclosure and reporting requirements on sustainability
and ESG. We have also continued to engage closely with the ISSB as it
develops global reporting and disclosure standards, and the FRC is a
member of the Board’s Sustainability Standards Advisory Forum.
In January 2023, we published an updated ESG Statement of Intent that
was very well-received by our stakeholders. FRC staff are also playing
leading roles in the development of global standards for the assurance
of ESG information and the ethics and independence standards that are
necessary to underpin high-quality and consistent work that underpins
public trust.
Our ongoing international work looks at how we can influence the
development of international auditing and assurance standards through
our direct involvement in the International Audit and Assurance
Standards Board (IAASB), responding to international consultations, and
through our engagement with other international standard setters and
regulatory bodies such as the International Ethics Standards Board for
Accountants (IESBA).
We remain a part of the International Forum of Independent Audit
Regulators (IFIAR) and contribute to all of its working groups, Josephine
Jackson (Director of International Audit Policy) sits as an IAASB
Board member providing leadership and direct input into standard
development, and Mark Babington (Executive Director of Regulatory
Standards) took on the role of IESBA Board member in January 2022.
Case study: ESG Statement of Intent 2023
The 2023 ESG Statement of Intent serves as a development and update
of our original 2021 publication. The 2021 ESG Statement of Intent
looked at issues with the production, audit and assurance, distribution,
consumption, supervision and regulation of ESG information. Our 2023
update provided a timely review of areas where there remain ongoing
challenges in reporting, suggesting actions for preparers to produce
decision-relevant information, and set out our plans to engage with the
market to ensure that stakeholder needs are met.
Since the publication of the original statement, we have produced a range
of helpful tools, information and guidance that reflects the fast-evolving
landscape of ESG, as well as the breadth of our remit. We continue
our work to improve transparency on climate and wider ESG risks, and
this year we are considering a number of areas in our projects and
thematics, including materiality disclosures, support for Financial Reporting
Standard (FRS) 102 preparers, ESG reporting requirements of the Corporate
Governance Code, and the link between investors and ESG reporting.
" The FRC
plays a
leading
role in the
development
of global
standards"
FRC | Annual Report and Accounts 2022/23 24
Supervision
The Supervision division delivers the FRC’s supervision and monitoring
obligations in respect of audit, accounting, corporate reporting
and actuarial work. As the supervision function of an improvement
regulator, it promotes innovation and improvement by exploring good
practice to raise the quality of audit and corporate reporting for all of
our stakeholders.
Our four faces regulatory model emphasises our ‘Supervisor’ role in
monitoring not only requirements but challenge, culture, and behaviours
as well. We have continued our assertive approach to audit firm
supervision, and although much of our work focuses on audit, this does
not happen in a vacuum. While audit supports the production of high-
quality, decision-useful information for stakeholders, we ensure that all
aspects of the sector maintain the high standards the FRC expects.
This year, we have continued our highly regarded and well-received
'What Makes a Good…' series, with the publication of 'What Makes a
Good Environment for Auditor Scepticism and Challenge' in November
2022, and 'What Makes a Good Annual Report and Accounts' in
December 2022.
" We have
continued
our assertive
approach to
audit firm
supervision"
FRC | Annual Report and Accounts 2022/23 25
Case study: What Makes a Good... Annual Report
and Accounts
As an improvement regulator, we use a principles-based framework that
identifies corporate reporting principles and effective communications
characteristics. We recognise the Annual Report and Accounts as the
cornerstone of corporate reporting, which should provide investors
with clear and relevant information on a company’s performance and
prospects to help them make informed investment decisions and to
promote effective stewardship.
'What Makes a Good... Annual Report and Accounts' provides good
practice examples we identified as part of our ongoing supervision
work and sets out our view of the characteristics associated with a
high-quality Annual Report and Accounts.
Our underpinning assumption is that a good Annual Report and
Accounts must comply with the relevant legal, regulatory, financial
reporting and code requirements. However, as every business is
different, preparing a high-quality Annual Report and Accounts must
be more than a compliance exercise and will vary between entities.
This publication sets out opportunities for improvement and
illustrates better practice, looking at ways that different aspects of the
Annual Report and Accounts can represent:
• Good quality application that we encourage other companies to
consider when preparing their Annual Report and Accounts
• Issues we have identified in our role as an improvement regulator
• Ways in which a company may improve the quality of its reporting
Through our Annual Corporate Reporting Review for 2022, we saw that
despite a continued challenging external environment, the high quality
of corporate reporting has been maintained, particularly in respect of
the FTSE 350.
The annual Tier 1 firm supervision and inspection reports, published
in 2022, showed that audit quality continues to improve at the largest
audit firms and on the largest audits, but still more improvement is
required to deliver consistent audit quality. It is clear that a combination
of the FRC’s increasingly assertive supervision approach, alongside
investment from the firms in their systems, people and capabilities to
improve audit quality, is starting to have a positive impact.
FRC | Annual Report and Accounts 2022/23 26
And while the first Tier 2 and 3 firms supervision and inspection report
found significant shortcomings in audit quality, the resulting Audit Firm
Scalebox, announced in December 2022, looks at bespoke measures to
help smaller firms meet the high quality standards expected of Public
Interest Entity (PIE) audit firms and to develop robust quality control
systems as they grow both their capability and capacity.
Our role as system partner was demonstrated in the publication of 11
firm-level audit quality indicators to provide users of audit services
with greater insight into many of the indicators that drive audit quality.
Firms will provide these indicators to the FRC, and the publication of
comparable data will provide users of audit services with an additional
source of information, enabling detailed and robust conversations
about audit quality with firms during individual engagements and when
considering auditor appointments.
2022 also saw the completion of our first transformation project in
Supervision, with the launch of the PIE Auditor Register in December.
This further bolsters our supervisory toolkit and helps us to hold firms
to account. This year also saw the appointment of Neil Harris as our
first Director of Local Audit, and in March 2023 our MoU with DLUHC
was published, enabling us to clearly set out our role as shadow system
leader in this space until the creation of ARGA allows us to take on the
role fully.
As set out in our 2023-26 3-Year Plan, we continue to focus on
activities to deliver further aspirations of the reform programme,
while maintaining or enhancing our existing regulatory functions to
ensure that they are delivering the best possible outcomes. We have
therefore begun to develop our supervisory oversight strategy for the
professional bodies. The supervision model for the professional bodies
will seek to mirror the model that has worked so well with the largest
audit firms.
We will have a supervisor who will pull together a more holistic view of
regulatory activities at the professional bodies. This view will consider
all elements of the membership journey from student to full member,
including continuous professional development, authorisation of the
individuals and firms, and the overall governance and leadership of
the organisation. Additionally, following the UK’s exit from the EU and
UK auditors’ loss of automatic statutory audit rights in EU member
states, we are seeking to secure several mutual recognition agreements
concerning audit qualifications with key countries around the world.
We are currently in negotiations with Australia and New Zealand, with a
view to reaching agreement later this year.
" The PIE
Auditor
Register
bolsters our
supervisory
toolkit"
FRC | Annual Report and Accounts 2022/23 27
Enforcement
The Enforcement division protects the public interest, maintains
confidence in the regulatory regime, and deters breaches of relevant
requirements by holding to account auditors, accountants, accountancy
firms and actuaries to support high standards in audit, accounting,
corporate reporting and actuarial work. The division:
• Conducts investigations and takes appropriate, risk-focused
enforcement action where it is in the public interest.
• Promotes improvements by communicating clear messages through
enforcement outcomes and publications such as the Annual
Enforcement Review.
• Sets and monitors effective non-financial sanctions designed to
improve quality.
A strong feedback loop within the FRC ensures that the Regulatory
Standards, Supervision and Enforcement divisions work hand in hand to
ensure better outcomes for all stakeholders. This in turn feeds into our
four faces approach to regulation, with Enforcement naturally taking on
the ‘Enforcer’ role while still making valuable contributions to other faces.
This year, we have seen a reduction in the size of the case portfolio as
fewer new cases have been opened, and our hard work to conclude
legacy cases has continued. We remain mindful of the current
challenging environment for all in the financial reporting space,
which we recognise may give rise to an increase in instances where
we consider opening an investigation. That’s why it is as important
as ever that the FRC sets out its expectations and guidance to help
preparers and accounting, audit and actuarial professionals manage
the challenges as much as possible. But, while we may see more cases,
you won’t see a change in our approach – we will continue to uphold
standards and take appropriate action when necessary, holding those
who do not meet these standards to account.
Our enforcement work, published outcomes and non-financial sanctions
play a vital part in our role as an improvement regulator, and we believe
that they are effective in encouraging better behaviours, judgements
and quality. Compared to the many thousands of audits conducted
annually, and the hundreds of AQR inspections completed, we have only
seen it necessary to take action in relatively few instances.
" We will
continue
to uphold
standards
and take
appropriate
action when
necessary"
FRC | Annual Report and Accounts 2022/23 28
This year, we have:
• Resolved 16 cases through constructive engagement.
• Met our established Key Performance Indicator (KPI)
1
in 75%
of investigations.
• Published 19 outcomes, 1 Tribunal Report and our fourth Annual
Enforcement Review.
• Grown the team in strength and depth of capacity and capability from
64 to 69.
• Opened 10 investigations.
• Resolved 11 cases through settlement.
• Closed 2 audit cases with no action.
• Closed 4 cases against members in business.
• Reduced the case portfolio from a high of 52 in Autumn 2021 to 38
at 31 March 2023.
1 A period of two years between commencement of an investigation opened in the year to 31
March 2021 and service of either the Proposed Formal Complaint or Investigation Report (IR) (or
closure or settlement if sooner).
FRC | Annual Report and Accounts 2022/23 29
Who falls under
the FRC's remit
for enforcement?
Is it just the
biggest audit
firms that you
enforce against?
Are sanctions
imposed simply
to punish do they
actually improve
behaviours or
standards?
The purpose of sanctions is to protect the public interest, uphold
standards and confidence in the regulatory regime, and deter
breaches. Sanctions are not imposed to punish. The significant
growth in non-financial sanctions in recent years is directly
targeted at improving quality, standards and behaviours.
Our sanctions policy sets out that decision-makers should
have regard to the principles of proportionality when applying
sanctions. However, it is crucial to note that failures in financial
reporting and audit more typically arise through lack of skill and
competence than dishonesty. All failures, however caused, can
directly damage the interests of a broad range of members of
society including employees, creditors and pensioners, as well as
damage the trust that investors and organisations have in the UK
as a good place to do business, hence the importance of holding
relevant parties to account and through published outcomes of
the breaches found, demonstrating behaviours to be avoided.
Shouldn't these
sanctions be
reserved for only
the most serious
cases, involving
dishonesty or
ethical failings?
Why apply
enforcement
action against
individuals?
Shouldn't the
FRC focus on
the firms?
No. The FRC conducts investigations and can bring enforcement
action in the public interest against auditors and audit firms,
accountants, accountancy firms and actuaries. However, we
currently have no powers to investigate, take enforcement action
or impose sanctions on individuals including Directors, other than
those who were at the relevant time members of the professional
accountancy bodies or members of the IFoA. Further details
of our powers, which are subject to legislative change, appear on
our website.
Improvements to firms’ behaviours and cultures are always a
key objective of the FRC; however, it must be recognised that
firms act through individuals. It is these individuals who are
personally accountable for compliance with ethical, accounting
and auditing standards, material breaches of which are so
damaging to the confidence in the reliance that can be placed
on financial reporting.
Common questions
FRC | Annual Report and Accounts 2022/23 30
Specialist audit advice is available within the Enforcement
division, and teams are also able to draw on technical expertise
from across the FRC, including from members of the FRC’s
extensive Advisory Panel and Senior Advisers. An independent
expert is instructed in all cases, save a handful where evidence
from an external expert is not required. The majority of our
cases are resolved through settlement or successful hearings
before an Independent Tribunal, evidencing our well-developed
understanding of the cases we investigate.
Does the FRC
have access to
the technical
specialists whose
expertise would
support the
timely completion
of cases?
Why do
enforcement
cases take such a
significant period
of time to be
resolved?
Couldn't
constructive
engagement help
resolve issues
faster if applied
to all cases?
Cases vary in the number of years in scope and in the number
and complexity of issues under consideration. Investigations
need to be fair and thorough, and are subject to factors
outside our control, including the responsiveness of firms, and
availability of materials and third parties. Efforts to improve
timeliness are ongoing and this year resulted in 75% of cases
meeting their KPI.
Constructive engagement is a helpful means of resolving cases where
the audit quality concerns can be appropriately and satisfactorily
addressed without full investigation, enforcement action, sanction or
published outcome. In 2021/22, we saw 39% of our cases resolved
through constructive engagement with ten separate audit firms,
typically where the errors appeared unlikely to have had a real impact
on the decisions taken by users of the financial statements.
This may have been because the errors were only marginally material
in a quantitative sense, were in highly technical areas of the financial
statements, or were in areas that were not of fundamental importance
to the measurement of the underlying financial performance of the
entity. However, constructive engagement is not suitable for all cases.
The current lack of published outcomes in such cases inhibits our
ability to act as an improvement regulator for the wider marketplace
and complex cases involving serious breaches that impact the public
interest require imposition of sanctions.
No. Sanctions are based on an objective, evidence-based assessment
of whether breaches that are serious or significant individually or
collectively have occurred. The FRC has seen an average of 11 cases
where sanctions were imposed in each of the four years to 31 March
2023, as compared with an average of four cases over the same period
where they were not. As identified in the 2022 AER, of our 17 concluded
cases in 2021/22, three were closed with no further action, 13 were
settled by agreement with findings of misconduct/breaches of duty, and
one case resulted in proceedings before the Independent Tribunal.
Once an
investigation
has started, is
it a foregone
conclusion that
breaches of duty
will be sanctioned?
FRC | Annual Report and Accounts 2022/23 31
Corporate Services
The Corporate Services division supports the work of the FRC by
providing professional HR, finance, risk, legal, IT, economic advice and
research, and data and analytics services to ensure that the organisation
is well run and complies with all relevant laws and duties. It has been
pleasing to see year-on-year improvements across all performance
indicators and the organisation continues to grow, with the support of
the division.
This year, the division has continued to embed new systems and
procedures across the organisation in our budgeting, learning and
development, general counsel, HR, diversity and inclusion, and finance
teams. The team supports the day-to-day demands and deliveries of
the FRC across all divisions. Our work to deliver better organisational
behaviours and build business resilience underpins our four faces model
and our work as an improvement regulator, all while building a platform
for the future.
This year, we have:
• Implemented operational effectiveness and enhanced reporting to
facilitate the four faces approach to regulation.
• Developed how we use and maintain data and information to support
our regulatory work to help make better decisions, and refreshed the
approach to information management, security and data privacy.
• Enhanced our data and analytical capability and improved
intelligence to support supervisory decision-making.
• Engaged with Government on impact assessments for regulatory
initiatives, working with colleagues across the wider organisation.
• Continued good quality recruitment, with an increased headcount
of 443 as of 31 March 2023, and invested in the learning and
development of our people.
• Progressed our commitment to diversity and inclusion across
characteristics, and further improved gender pay gap reporting.
• Conducted our annual people survey which saw improvements across
key performance indicators (see page 49) and recognises the role of
our now embedded Values and Behaviours.
• Implemented our long-term hybrid working procedures as we
maintain a hybrid approach to business as usual.
" We have
seen year-
on-year
improvements
across all
performance
indicators"
FRC | Annual Report and Accounts 2022/23 32
• Improved our operational and IT resilience and embedding of our risk
and control framework, and contingency planning including testing
our responses to unplanned events.
• Updated the complaints handling processes against external
benchmarking.
• Collaborated closely with the Transformation Programme via the
legal team.
• Set out our approach to the statutory funding of ARGA.
• Commenced the planning for new offices for the FRC and ARGA.
FRC | Annual Report and Accounts 2022/23 33
Strategy and Change
The Strategy and Change team is the engine for transformation
across the organisation, through delivery of project and programme
management that embeds sustainable change. The team is also
responsible for the development of the FRC’s strategy and 3-year plan
in collaboration with the Board, Executive and Finance teams. The
Strategy and Change function sits in the newly established CEO division,
is cross-functional, and focuses on managing change and continuous
improvement across the entire organisation.
Work this year focused particularly on adapting to align with our
four faces of regulation as we further develop the balance between
assertiveness and being an improvement regulator. The team has
continued to integrate a more mature Transformation Programme into
the ongoing work of the organisation, including re-prioritisation of some
areas due to the further delay in introducing legislation to create ARGA.
The 2023-26 3-Year Plan, published on 27 March 2023, sets out the next
steps for the organisation, ensuring that we continue to design and
deliver effective regulation to the benefit of all stakeholders. The Strategy
and Change team spearheads the work of facilitation, joining up work
across many of our strategic initiatives.
The work of the Transformation Programme team has focused on
maximising the impact of non-legislative approaches, such as developing
our view on defining the use of public interest test criteria and planned
future reporting on our regulatory perimeter, as published in November
2022. Most projects within the programme have objectives and desired
outcomes that span both transformation and ‘business as usual’, and
these projects use cross-FRC steering groups to make effective use of
colleagues’ time. Throughout the year, we have also continued to work
closely with our counterparts at DBT on legislative proposals.
Our Project Management Office (PMO) has been working hard to provide
all teams with standardised tools, templates and training, aligning our
projects to our strategic objectives to support organisational decisions
and priorities. During this year, the PMO has further embedded the
use of our Projects and Programmes Assurance Board as a forum for
the challenge and oversight of our most important projects. It has
also expanded the FRC’s Project Community as a place for project
professionals to share knowledge and expertise together, as part of our
overall project management learning and development strategy.
" The Strategy
and Change
function
focuses on
managing
change and
continuous
improvement"
FRC | Annual Report and Accounts 2022/23 34
What we said we'd do
What we said we'd do in our 3-Year Plan 2022-25
Regulatory Standards
Action Completed?
• Development and maintenance of standards and codes, including
the periodic review of FRS 102, adoption of International Standard
on Auditing (ISA) (UK) 500 and ISA (UK) 600, and post-
implementation review and revision of technical actuarial standards.
• Alignment of our Corporate Governance and Stewardship
monitoring and evaluation programme.
• International influencing of auditing and ethical standards, and
significant contribution to non-financial reporting developments in
the UK and internationally.
• Preparation for ARGA's local audit systems leader role.
• Activities focused on improvements and innovation to support high
quality reporting and audit quality including establishment of a
new ‘Audit Sandbox’.
• Promoting the use of technology throughout our policy areas.
• Supporting FRC’s objectives and activities through increased
stakeholder engagement with impact and influence, including an
overhaul of planned publications focused on collective impact.
Supervision
Action Completed?
• Deliver a full programme of high-quality AQR inspections,
Corporate Reporting Reviews (CRR) and professional oversight
visits, and publish associated reporting, including thematic reviews.
• Carry out International Standard on Quality Control (ISQC)
inspection work and prepare for International Standards of Quality
Management (ISQM) 1.
• Increase supervision of audit firm culture.
• Assess audit firms’ adoption of operational separation principles.
• Implement PIE audit registration decision-making.
• Increase intensity of forward-looking supervision of audit firms,
with more ‘joined up’ regulation of firms’ actions on quality.
• Negotiate mutual recognition agreements resulting from EU Exit.
• Perform equivalence and adequacy assessments.
FRC | Annual Report and Accounts 2022/23 35
Enforcement
Action Completed?
• Fair, robust and timely case closures or conclusion through focus of
investigations, prioritisation, training and recruitment.
• Upskilling and training to respond to changes in the Audit
Enforcement Procedure (AEP) from January 2022 and implement
future powers arising from regulatory reform.
• Publication of the AER, driving improved behaviours through
messaging case outcomes.
Corporate Services
Action Completed?
• Develop a statutory funding model for ARGA.
• Develop and implement an integrated information management
strategy, including a medium-term IT strategy and enhanced data
analytics and reporting.
• Enhance cybersecurity risk management.
• Appropriate workforce planning, aligned with our business planning
cycle and designed to incentivise, reward and retain key skills.
• Strengthen our support infrastructure, including in finance and
procurement systems, internal controls and IT.
• Legal support for regulatory reform and legal and operational
support for the UK Endorsement Board (UKEB).
FRC | Annual Report and Accounts 2022/23 36
7. Strategic priorities for 2023/24
FRC | Annual Report and Accounts 2022/23 36
7. Strategic priorities for 2023/24
FRC | Annual Report and Accounts 2022/23 37
7. Strategic priorities for 2023/24
Our priorities in 2023/24 will focus on how each division intends to organise its work and the
associated deliverables in the coming year, particularly given the re-prioritisation exercise
carried out by the organisation as a result of the delay to legislation to create ARGA.
Regulatory Standards
Priorities in 2023/24 include:
• Development and maintenance of standards and codes, including completion of
the periodic review of FRS 102, adoption of a revised ISA (UK) 500 Audit Evidence,
post-implementation reviews of UK auditing standards, in particular ISA (UK)
540 Accounting Estimates and Related Disclosures, review of the UK Corporate
Governance Code, and post-implementation review and revision of TAS.
• International influencing of auditing, assurance and ethical standards, and
significant contribution to non-financial reporting developments in the UK and
internationally (especially sustainability reporting).
• Policy support for ARGA’s local audit system leader role.
• Activities focused on improvements and innovation to support high-quality reporting
and audit including FRC Lab publications and use of the new Audit Sandbox.
• Promoting the use of technology throughout our policy areas through digital
reporting and the implications for data and data governance, and commencing the
Company and Organisational Data Explorer (CODEx) project.
• Supporting the FRC’s objectives and activities through increased stakeholder
engagement with impact and influence, including website improvements,
connected and systematic development of publications, webinars and podcasts,
focused on collective impact.
FRC | Annual Report and Accounts 2022/23 38
Supervision
Priorities in 2023/24 include:
• Delivering a full programme of high-quality AQR inspections, CRR reviews and the
FRC’s statutory professional oversight functions, and publish associated reporting
including thematic reviews.
• Increasing activities focused on improvements and innovation to support
improved audit quality and resilience in the market, including implementation of
the FRC Scalebox.
• Approval and registration of audit firms and responsible individuals who undertake
PIE audit work.
• Assessing the effectiveness of firms’ implementation of new auditing and quality
management standards.
• Developing a supervisory approach for audit committees.
• Developing the supervisory oversight strategy for the professional bodies.
• Developing the local audit system leader role and team in shadow form, ahead of
ARGA implementation.
• Reporting on implementation of operational separation.
• Developing the market monitoring function.
• Delivering projects on developing AQR and improving the quality of auditor
education and training.
FRC | Annual Report and Accounts 2022/23 39
Enforcement
Priorities in 2023/24 include:
• Fair, robust and timely case closures, or conclusion through focus of investigations,
prioritisation, training and recruitment.
• Upskilling and training to respond to changes in the AEP from January 2022 and to
intended changes to procedural published guidance.
• Collaboration with DBT on planned legislative change to reach the best achievable
outcomes as they pertain to enforcement and the FRC’s stated purpose and objectives.
• Upskilling to enable full implementation of future powers arising from proposed
regulatory reform in 2024 onwards.
• Publication of the AER, delivering transparency and driving improved behaviours
through messaging case outcomes.
FRC | Annual Report and Accounts 2022/23 40
Corporate Services
Priorities in 2023/24 include:
• Developing a statutory funding model for ARGA.
• Developing and implementing an integrated information management strategy,
including a medium-term IT strategy and enhanced cybersecurity risk management.
• Data analytics and reporting, economic advice and impact assessment – supporting
enhanced market monitoring, the implementation of the FRC Position Paper, and
transition to ARGA.
• Appropriate workforce planning, aligned with our business planning cycle and
designed to incentivise, reward and retain key skills and accommodate any
relocation plans.
• Strengthening our support infrastructure, including in finance and procurement
systems, internal controls and IT.
• Enhancing the level of assurance activity against internal policies and controls.
• Legal support for all FRC activities, and legal and operational support for the UKEB.
• Embedding our contingency planning processes and testing regime.
FRC | Annual Report and Accounts 2022/23 41
8. Key Performance Indicators
In measuring our performance, a series of targets are agreed and monitored during the
year. The FRC’s Executive Committee regularly receives detailed management information
on performance against each of the published KPIs. Our 2022/23 performance against
some of the key measures is shown below together with prior year performance.
Category Measure Target
(FY)
2022/23
(FY)
2021/22
(FY)
Supervision
and monitoring
Number of reports
completed by AQR
154 143 152
Reviews opened
by CRR
240-260 260 252
Complaints against
professional bodies for
auditors, accountants
and actuaries investigated
and responded to within
six weeks
75% 81% 79%
Constructive engagement
cases concluded within
12 months
100% 100% 100%
Enforcement Enforcement cases
concluded, settled,
or closed within
two-year target
2
75% 75% 40%
2 The Enforcement KPI is a period of two years between commencement of an investigation and service of either the
Proposed Formal Complaint or Investigation Report (or closure or settlement if sooner). Please see the FRC’s
Annual Enforcement Review for further details on our enforcement activities and findings during 2021/22. In the AER,
we noted that in the coming year we would review our target KPI with a view to identifying a metric that provides more
meaningful and richer insight into our performance while maintaining our emphasis on security improvements to the
timeliness of our investigations and enforcement action.
FRC | Annual Report and Accounts 2022/23 42
Category Measure Target
(FY)
2022/23
(FY)
2021/22
(FY)
Financial and
operational
performance
Operating costs against
budget (excluding the UKEB)
£50.3m £50.5m £39.8m
Recruitment (staff) against
budget (excluding the UKEB)
457 443 374
FRC complaints responded
to within service level
agreement timeframe
100% 100% 100%
Research projects
undertaken
14 13 12
Our 'What Makes a Good…' publication series helps us to define what we believe to be
the primary characteristics of a well-functioning audit market with greater choice and
resilience, as well as other topics relevant to the production of high quality, decision useful
corporate reports. This work allows us to publish more informative, outcomes-based
measures showing how our work has impacted on quality in each of the areas we regulate.
Identifying appropriate measures, which may often be qualitative in nature, or proxies
in the absence of clearly correlated quantitative measures forms part of the deliverables
described above.
FRC | Annual Report and Accounts 2022/23 43
9. Environmental, Social and Governance (ESG)
Over the last year, we have produced a vast amount of helpful material and taken
appropriate actions to support our continued commitment to issues relating to
ESG. Some highlights include:
• Our updated ESG Statement of Intent: What’s Next, which set out areas where
there remain ongoing challenges in ESG reporting, suggested actions for preparers,
and our ongoing plans to engage with the market.
• Our annual reviews of Corporate Governance and Stewardship Reporting, including
an enhanced focus on ESG governance and reporting.
• Our ongoing development of codes, standards and guidance relating to ESG to
build a system that is forward-looking and fit for purpose.
FRC | Annual Report and Accounts 2022/23 43
9. Environmental, Social and Governance (ESG)
Over the last year, we have produced a vast amount of helpful material and taken
appropriate actions to support our continued commitment to issues relating to
ESG. Some highlights include:
• Our updated ESG Statement of Intent: What’s Next, which set out areas where
there remain ongoing challenges in ESG reporting, suggested actions for preparers,
and our ongoing plans to engage with the market.
• Our annual reviews of Corporate Governance and Stewardship Reporting, including
an enhanced focus on ESG governance and reporting.
• Our ongoing development of codes, standards and guidance relating to ESG to
build a system that is forward-looking and fit for purpose.
Environmental
Representing the UK on
IESBA, the ISSB and IAASB
FRC Lab reports on
improving ESG data
production and net
zero disclosures
(see ‘2023 highlights’)
Guidance on the Strategic
Report, incorporating
climate-related financial
risks and opportunities
Corporate governance
7
Recruitment of new
members to the Advisory
Panel, due to start in
May 2023
12
Appointment of 12
new members to
the independent
Tribunal Panel
Social
81%
Our annual staff survey
found 81% of staff were
proud to work for the FRC
(see ‘Our people’)
Introduction of flexible
public holidays, allowing
colleagues to switch
standard paid public
holidays to reflect events
and festivities that are
important to them
Continued embedding of
positive culture via our
Values and Behaviours with
internal events and updates
to colleagues
(see culture in ‘Our people’)
FRC | Annual Report and Accounts 2022/23 44
10. Our people
People are at the core of the FRC, and we are focused on offering a
high-quality employment proposition to all FRC employees. For the FRC
to succeed, it requires a workforce of experts to guide and develop the
evolution of our regulated marketplace.
Over the last year, we have continued to expand the organisation in
anticipation of ARGA. We have grown to 443 employees, which is a 12%
net increase on our 2022 year-end headcount (391). 353 members of
staff were full-time, 72 of staff were part-time, and 18 were employed
through secondment or contract.
Division Number of new staff recruited in 2022/23
Corporate Services 25
Enforcement 9
RegulatoryStandards 23
Supervision 24
UKEB 8
Grand total 89
Looking ahead to 2023/24, we will continue to grow our organisation
as a highly regarded employee value proposition. As the marketplace
continues to be more candidate-driven, we are focused on ensuring
that we are able to fill new roles agreed in our annual budget. It is
anticipated that we will add 90 new roles to the FRC in 2023/24.
Our hybrid working programme is now integrated across the
organisation, allowing our people to combine the benefits of working
from home with time in the office, which allows for collaboration and
working together in person as needed.
A full legal review of all of our people policies was last undertaken in
November 2021.
" For the FRC
to succeed,
it requires
a workforce
of experts"
FRC | Annual Report and Accounts 2022/23 45
Staff wellbeing
The FRC continues to prioritise the wellbeing of our staff. Our Employee
Assistance provision provides access to GP online services, online
physiotherapy, counselling and legal advice services, as well as hosting
an extensive series of webinars and workshops aimed at improving the
health and wellbeing of our employees.
We have continued to embrace a four-day fortnight in the office for all
staff, with staff able to choose whether to work from home or the office
for the remaining days.
Health and safety
At the FRC, we want to provide a healthy and safe working environment
for all our staff and visitors. We have a dedicated team of fire marshals,
first aiders and mental health first aiders, to support the staff and record
any incidents.
Per employee, the average working days lost to absence for the 12
months to March 2023 was 4.0 days (2022: 3.2 days).
Talent development
We continue to invest in the development of our employees. Since
the last Annual Report, over 55 staff (approximately one-ninth of the
workforce) have secured places on structured programmes of leadership
and management development. We have embedded a culture of
learning and talent development across the organisation and continue
to allocate six days per year to learning and development activities, with
the potential for more with the agreement of an individual’s manager.
Of 443 employees, 281 are members of professional bodies and 57
employees are working towards professional qualifications.
Corporate Social Responsibility
All FRC staff are entitled to two days of paid volunteering or Corporate
Social Responsibility leave per year. We offer all employees the
opportunity to make regular donations, tax free, straight from their pay
to any UK registered charity via the Payroll Giving scheme.
" We prioritise
the wellbeing
of our staff"
FRC | Annual Report and Accounts 2022/23 46
Staff retention
Over the last year, attrition has remained low with a voluntary turnover of 7.9% and
involuntary turnover of 2.2%. However, given the ongoing competitive employment
market, we keep this under constant review. We have also had 11 members of staff return
from maternity or parental leave this year.
Internal movements and promotions continue to provide an opportunity for our people to
develop their career, and of the 119 vacancies filled in 2022/23, 56 of them were internal
appointments. We also continue to review and adjust the shape of our organisation as we
grow, further developing our workforce planning strategy.
The FRC was subject to the public sector pay pause in 2021/22. In 2022/23, we reviewed our
annual compensation approach to respond to the market changes we had seen during the
pay pause and to ensure that we could resource and retain the people required to enable
the FRC to meet its ambitious goals. This included raising entry level pay, focusing on our
competency pay approach and recognising the cost of living pressures on colleagues.
Diversity and inclusion
Diversity and inclusion (D&I) continues to be a strength of the FRC. Our three-year strategy
of 2021/22 is now embedded across the organisation, with all staff required to have a D&I
performance objective.
Our gender pay gap now sits at 0 % (median figure. Mean 10.7 %. 2022 median: 15.9 %),
which equates to a 15.9% improvement . This continued reduction in our gender pay gap
reflects the increasing number of women at all job levels in the organisation.
Our D&I network groups continue to gain traction, and all have an allocated executive
sponsor. We continue to celebrate events and hold educational sessions in relation to the
groups throughout the year.
The FRC provides a range of learning and development opportunities on D&I including
active bystander training which is mandatory training for all employees. In addition,
we offer inclusive language and career development training to all staff and encourage
disabled staff to blog about their own lived experiences. During this year, we have
partnered with the Business Disability Forum to provide more support to managers, where
they are faced with questions from disabled employees. In the new financial year, we will
broaden our training offer to include learning on neurodiversity and deaf awareness.
FRC | Annual Report and Accounts 2022/23 47
The FRC is a signatory to the Women in Finance Charter. We also partner with LGBT Great,
a global member platform that provides a safe space for LGBT+ people and their allies to
network and learn.
FRC | Annual Report and Accounts 2022/23 48
Age breakdown
30 Number of staff aged 18–25
175 Number of staff aged 26–40
171 Number of staff aged 41–55
67 Number of staff aged over 55
Gender breakdown
2023 2022
(out of 391)
Ethnicity breakdown
2022/23 2021/22
267 (60%) 236 (60%) Number of white staff
65 (15%) 52 (13%) Number of Asian staff
24 (5%) 24 (6%) Number of Black staff
20 (5%) 16 (4%) Mixed-race staff
14 (3%) 5 (1%) Other ethnicity
53 (12%) 59 (15%) Preferred not to disclose ethnicity
Diversity data for senior managers (Level 6+) out of 25
FRC | Annual Report and Accounts 2022/23 49
FRC Behaviours and Values (showing percentage of respondents)
I am aware of, and understand, the FRC Values and Behaviours
FRC Values and Behaviours are clear and well-defined
FRC Values and Behaviours are embedded in the way we work
FRC Values and Behaviours guide the way we operate and make decisions
I agree with FRC Values and Behaviours
Colleagues within the FRC demonstrate and support the FRC Values and Behaviours
My manager treats me with respect and fairness
Colleagues within the FRC treat external stakeholders with respect
I believe the FRC is joined-up in its approach to work across the organisation/divisions
In the FRC people are encouraged to speak up when they identify a serious
policy or delivery risk
I feel able to challenge inappropriate behaviour in the workplace
65
26
6
Culture
Our Values and Behaviours are now ingrained in the culture of the organisation, following
the review of our values in 2021. Our values reflect the Regulators' Code. In our 2023
people survey, strong engagement with our Values and Behaviours was evidenced with
strong scores for statements relating to Values and Behaviours:
5
13
23
64
58
52
50 25 8
23 7 2
24 19 5
5
7
9
56
38
55
44
30
26
16
16
12
54
36
9
18
20
Strongly agree Agree Neither agree
nor disagree
Disagree Strongly
disagree
58 14 6 3
49 21 8 3
FRC | Annual Report and Accounts 2022/23 50
Employee engagement
We have a number of active channels to engage with our colleagues,
including monthly town halls and divisional team meetings, as well as
internal communications activities such as newsletters and podcasts.
These activities keep staff informed on the FRC Strategy, Plan and
Budget, as well as any key external issues impacting the organisation or
our regulated community, such as the reform agenda.
The FRC has an extensive network of staff committees that allow
colleagues the opportunity to engage in issues of interest to them,
including our D&I Committee, our Learning and Development
Committee, and a wide range of peer-to-peer interest groups, including
photography, music and a knitting circle.
Consultation with colleagues is exercised through our People Forum.
Ruwan Weerasekera is our NED with responsibility for workforce
engagement and reports to the Board and People Committee on
employee views and areas of focus. Representatives from each division
from across the FRC meet on a bimonthly basis to discuss key people
issues. The agenda is broad but key topics this year have been hybrid
working, learning and development provision and D&I.
The 2023 People Survey ran in January, and saw an excellent response
rate of 82%, giving rich data on the current views of staff on a wide
range of issues and demonstrating a good level of engagement among
employees. The survey was facilitated by an external provider, Survey
Solutions, appointed after a competitive procurement process.
The FRC’s Purpose is to
serve the public interest
by setting high standards
of corporate governance,
reporting and audit and
by holding to account
those responsible
for delivering
them.
Our
Purpose
Our
Values
Independent
Fair
Influential
Effective
" Our 2023
People
Survey saw
an excellent
response
rate of 82%"
FRC | Annual Report and Accounts 2022/23 51
The engagement score using the Civil Service Engagement Index calculation is 71 (2022:
70). Out of 5-scale questions, 4 is considered to be an ‘excellent’ or ‘very good’ results,
with 1 lukewarm’ result and 0 ‘poor’. These results help us to identify areas of strength and
development for the FRC.
20222023
Percentage of staff who were
proud to work for the FRC.
Percentage of staff who were aware
of the FRC's Values and Behaviours.
Percentage of staff who felt
management was considerate
of their life outside work.
81
%
94
%
94
%
80
%
91
%
89
%
FRC | Annual Report and Accounts 2022/23 52
11. Section 172 and stakeholder engagement
Section 172 of the Companies Act 2006 (the Act) requires Directors to consider the
interests of stakeholders in their decision-making. In particular, section 172(1) states that
regard should be had to:
• The long-term consequences of decisions.
• The interests of the company’s employees.
• The need to foster the company’s business relationships with suppliers, customers
and others.
• The impact of the company’s operations on the community and the environment.
• The desirability of the company maintaining a reputation for high standards of
business conduct.
Our direct stakeholders include companies, institutional investors, auditors, actuaries,
accountants, and their respective professional bodies. Our indirect stakeholders include
retail shareholders, suppliers, employees, customers, communities, pensioners and
savers, and financial institutions. All of our stakeholders have an interest in the health of
companies and other organisations within our existing and future regulatory scope, and in
the success of the UK corporate sector as a whole.
The Directors are fully aware of their responsibilities to promote the success of the
company in accordance with section 172. Consideration of stakeholders’ interests
has always been integral to the work of the FRC and in its decision-making. The FRC’s
Stakeholder Engagement and Corporate Affairs team continues to deliver high-quality
engagement with our stakeholders and increase the reach, engagement and targeting of
our communications and activity.
Our approach to stakeholder engagement
Our approach to stakeholder engagement focuses on:
• Creating a network of advocates.
• Soliciting senior level input.
• Positioning the FRC as a leader in key debates.
• Gathering input into policymaking and consultations.
• Driving awareness and engagement with our Codes and best practices.
• Ensuring that the FRC is a part of relevant decision-making bodies and groups.
FRC | Annual Report and Accounts 2022/23 53
We regularly use a variety of formal and informal engagement channels to reach our
wide range of stakeholders. This year, we will continue our work on audit and corporate
governance reform working towards the future of the FRC and ARGA, as well as a major
consultation on the review of the Corporate Governance Code in addition to our business-
as-usual work.
Board consideration of stakeholder matters
The Board and Executive Committee received regular briefings on stakeholder
engagements, insights, and risk and reputation management during the year. The Board
carefully considers the impact of its decisions on stakeholder groups and the Directors
acknowledge that, as an independent regulator with a public interest remit, its decisions
will not always be supported by all stakeholders. Major policy issues are subject to
consultation and responses are carefully considered to inform decision-making, with due
process on consultations relating to matters of public interest. Feedback statements are
issued following consideration of consultation responses, and these are published on the
FRC website.
The Board has a process in place for decision-making, taking into account the FRC’s
strategic objectives, to ensure it has confidence in the decisions it takes. Board paper
templates require that papers on topics that may affect stakeholders set out the
relevant issues and potential impact. The Board also works to ensure that its decisions
are consistent. When making key decisions, the Directors also have regard to the need
to foster the company’s business relationship with suppliers, customers and all other
stakeholders in our supply chain during the financial year.
The success of the FRC is dependent on strong engagement from all of our stakeholders
and we recognise their valuable contribution to our work. Some particular highlights from
this year include:
• Consulting with the actuarial community to support the launch of the Pensions Dashboard.
• The FRC strategy and plan, informed by significant stakeholder feedback via meetings
between the CEO, Chair and stakeholders to gather views of the FRC and how we can
progress on our transformation journey.
• An event for the FRC's Non-Executive Advisers, a vital component of the governance
structure, to update them on current and ongoing developments.
FRC | Annual Report and Accounts 2022/23 54
12. Environmental impact
FRC | Annual Report and Accounts 2022/23 54
12. Environmental impact
FRC | Annual Report and Accounts 2022/23 55
12. Environmental impact
Alongside mandatory Streamlined Energy and Carbon Reporting (SECR) disclosures,
recommendations for Professional Commercial Services companies.
You can find our SASB disclosures on the following pages:
Data handling and data security p60 Ethics and compliance p60
Employee engagement p50 Our people p44
Professional Integrity p61
Governance
The FRC Board has ultimate responsibility for the FRC’s consideration of, and response
to, climate change and other environmental issues including the nature and extent of the
principal risks to our strategic objectives. The Audit & Risk Committee has a delegated
responsibility from the Board for reviewing the full risk register, looking at all current and
emerging risks to our strategy and objectives.
The Audit & Risk Committee’s Terms of Reference were amended this year to include
explicit reference to the committee’s oversight of identified climate-related risks, ensuring
that climate related risks and opportunities remain at the forefront of its risk discussions.
Our Board, committee and Executive Committee report templates were also updated this
year to include a dedicated section and questions for report writers on ESG considerations.
As part of our annual Board Effectiveness Review, the Board considered the strength and
effectiveness of its leadership on ESG matters, and developments in this area have been
built into the Board’s action plan. This includes additional training and regular updates
from the ESG and Climate Group, and a planned strategy session on the international
direction of travel on climate and sustainability standard-setting, current UK government
policy objectives, the scope of the FRC’s current and future powers and our crossover with
other UK regulators, particularly the FCA.
FRC | Annual Report and Accounts 2022/23 56
Strategy
Since conducting our initial assessment of climate change risks in 2022 in line with TCFD,
our central risk team have undertaken a series of workshops to identify any emerging
climate change risks or opportunities for the FRC. Our assessment from these workshops is
that the FRC is not materially exposed to the physical risks of climate change in the short
and medium term and that climate change does not represent a threat to our viability or
ability to operate.
In July 2022, we carried out a physical disruption exercise as part of our overall business
continuity planning, based on an extreme summer heat scenario and its potential impact
on our staff and operations. The exercise was carried out by the FRC’s crisis management
team and used to identify areas for improvement in the FRC’s Business Continuity Plan,
including the development of a specific plan to respond to significant disruptions to
power supplies.
Sustainability credentials and resilience to climate change will inform our decisions
regarding the establishment of new office buildings for the FRC in the coming years.
Risk
We operate a bottom-up approach to risk, considering risks and opportunities at all
levels of our operations from individual project discussions through to divisional and
organisational risk identification workshops. This information feeds into the risk register
which is overseen by Executive Committee, the Audit & Risk Committee, and ultimately the
Board for any risk assessed to be a principal risk.
The FRC recognises the growing demands for meaningful, assured and comparable
sustainability reporting and significant implications that these demands will have for
businesses and investors in the UK. Alongside other regulators, the FRC has been asked
to support Government in developing the requirements and standards for high quality
sustainability reporting in the UK. For more information on the FRC’s ongoing work in this
area please see page 22. A failure to meet stakeholder expectations on ESG reporting and
related monitoring and enforcement activities have been identified as a principal risk for
the FRC and is therefore overseen by the Board (please see page 83).
More information on the FRC’s risk framework and processes can be found on page 75.
FRC | Annual Report and Accounts 2022/23 57
Metrics
The FRC occupies one floor of a multi-tenanted, externally managed building and as such,
we are unable to make unilateral changes to the energy and water systems in the office,
which makes it challenging for us to set attainable quantitative targets for the reduction of
our own electricity, gas and water consumption.
We receive monthly electricity, gas and water consumption meter readings from the
building’s central facilities management team. We used this data to calculate and report
our Scope 1 and 2 consumption levels this year and have applied this year’s SECR
conversion factors to calculate our emissions.
We also collect data on IT waste, single use plastics, paper and business travel which we
provide to Government as part of the Greening Government Commitments. We have been
collecting this data for the last two financial years, which has enabled us to identify and
promote positive trends in our consumption and waste.
2022/23 2021/22
Scope 1 consumption (kWh) Natural gas 210,813 225,275
Vehicle fleet fuels 0 0
Scope 2 consumption (kWh) Purchased electricity 156,089 131,225
Total energy consumption (kWh) 366,902 356,500
Scope 1 emissions (tCO
2
e in ktn) 42 46
Scope 2 emissions (tCO
2
e in ktn) 30 28
Total carbon emissions (tCO
2
e in ktn) 72 74
Intensity ratio
(Total carbon emissions kg/number of staff) 163 * 189 **
*(72ktn/443 members of staff) **(74ktn/391 members of staff)
2022/23 2021/22
Water consumption (m
3
) 1,460 1,132
Paper consumption (A4 reams equivalent) 444 276
Single use plastic consumption (no. of items) 2,615 7,923
Business travel (km) 603,845 61,212
FRC | Annual Report and Accounts 2022/23 58
Intensity ratio
Energy consumption
There has been an increase in electricity and water consumption this year in comparison
to the previous two years, which can be attributed to the year-on-year increase in staff
working in our office as part of our increase in headcount and the operation of our hybrid
working policy. However, we note that energy consumption levels remain below pre-
pandemic (2019/20) levels and that the year-on-year downward trend in gas consumption
has continued, with gas consumption levels now 9% lower than there were in 2019/20.
While this is pleasing to see, we acknowledge that these figures exclude emissions from
staff that now work from home for part of their working week. We are working to improve
our measurement of Scope 3 emissions, including from commuting and home working, to
help us develop a better understanding of our total emissions.
FRC business travel has increased significantly this year as invitations to meet with other
regulators and speak at international events have returned post-pandemic. However, all
business travel complied with the published travel policy and staff are actively asked to
weigh the environmental impact of their travel against the potential benefits to the FRC
before making their travel arrangements.
Waste management
The FRC has a policy on the disposal of IT equipment and this year, we have engaged with
an external contractor to manage a large-scale assessment of our IT equipment, identifying
items to sell, refurbish, recycle or send to landfill in line with the Waste Electrical and
Electronic Equipment Regulations 2013.
Due to higher office occupancy, our paper consumption has increased this year against
2021/22 levels but is still well below pre-pandemic levels. Our single-use plastic
consumption has fallen significantly but we continue to consider non plastic alternatives,
particularly for our office stationery items, and have refreshed our communications to staff
about the need to reduce paper and single-use plastics consumption.
FRC | Annual Report and Accounts 2022/23 59
In July 2022, we removed individual waste bins from under every desk and introduced full
waste separation stations across the office. Food waste, recyclables and non-recyclables are
now segregated for collection by the building’s central waste contractors.
Energy efficiency measures
In making plans to reduce our consumption, we remain mindful that cloud computing
is capable of significantly improving energy efficiency and reducing greenhouse gases
compared to traditional local servers. We have therefore funded further moves from on-
premises applications to more energy efficient cloud hosting.
Plans to install 50% LED lighting to the office by the end of 2022/23 were cancelled. Taking
into account the short length of the FRC’s remaining lease term at 125 London Wall and
our plans to move to new offices in the near future, we determined that the disposal of the
old fixtures and the installation of newly manufactured LED lighting was likely to lead to a
negative net environmental impact, particularly if the new lighting was not retained by the
next lease holder.
FRC | Annual Report and Accounts 2022/23 60
13. Ethics and compliance
Data handling
Information and data loss is recognised as one of the FRC’s principal risks and as such, is
included on the Principal Risk Register. Executive Committee and the Board, supported by
the Audit & Risk Committee, keep those risks and controls in place to mitigate those risks
under review on a regular basis. We keep a separate Record of Processing Activities (ROPA)
and an Information Asset Register.
We operate an internal Information Governance Group (IGG) that meets quarterly to review,
assess and improve operational oversight and coordination of information governance
and controls. The remit of the IGG allows it to support the engagement of staff with and
commitment to information handling, and to identify areas of concern at an early stage for
escalation to Executive Committee or the Audit & Risk Committee if appropriate.
We understand the importance of privacy and maintaining trust and confidence in our
data handling processes. Our General Counsel Team (GCT) maintains our privacy and data
retention policies and procedures, working closely with the Data Protection Officer. GCT
also oversees responses to all GDPR and Freedom of Information Act (FOIA) requests,
and compliance with application legislation, including UK GDPR. All FRC staff and Board
members have received mandatory training on relevant aspects of UK GDPR, online
security risks and FOIA. Through our processes and procedures, we are able to provide
assurance that personal data is handled and processed in line with the seven UK GDPR
Principles. Information on our privacy policies can be found on our website.
We ensure we have an up-to-date IT architecture in place to defend the FRC against data
security and data loss threats that may occur when staff work in the office or at home. This is
a continuous process. As a result of our reviews, numerous enhancements were made to anti-
virus and malware configuration settings and patching processes. Threat managing features
were enhanced and the ability to take action on discovered threats were also introduced.
We also tested how we would respond to any malicious activity by carrying out extensive
testing over a three-month period, including how our monitoring systems would notify us
of suspicious activity. During 2022/23, 22 information incidents were reported. None of the
incidents were reportable breaches.
FRC | Annual Report and Accounts 2022/23 61
Managing conflicts of interest
All FRC staff and non-executives must comply with the Code of Conduct and make up-
to-date, full disclosures regarding their external interests, and any gifts and hospitality
received, to ensure that our work remains free from bias. New staff must disclose their
relevant interests prior to contract. Staff are not permitted to take part in work relating to
an entity they have worked for in the last five years, unless an exemption request has been
viewed and approved by a member of the Executive Committee. In accordance with the
policy, the People Committee regularly reviews disclosures made by the Board members,
Executive Committee, Senior Advisers and Advisory Panel Members. These are published
on the FRC website.
Bribery policy
UK legislation on bribery applies to the FRC, its staff and members of the governance
structure. The FRC Code of Conduct, which staff and members of the governance structure
must follow, sets out that all must not:
• Bribe another person, which includes offering, promising or giving a financial or
other advantage.
• Accept a bribe, which includes requesting, agreeing to receive, or accepting a financial
or other advantage.
• Facilitate or condone an act of bribery.
Whistleblowing
The FRC maintains its own whistleblowing mechanisms and internal investigation
procedures. The FRC’s central complaints function conducts internal reviews into any
external complaints received about the FRC itself and an Independent Complaints
Reviewer may be appointed to review the FRC’s processes should a complainant have any
outstanding concerns.
Litigation
During 2022/23 the FRC suffered no monetary losses as a result of legal proceedings
associated with the FRC’s professional integrity, which would include negligence of duty,
malpractice, breach of contract, fraud, corruption or bribery.
Gifts and hospitality
In accordance with the policy, the People Committee regular review disclosures made by
Board members and Executive Committee. These are published on the FRC website quarterly.
FRC | Annual Report and Accounts 2022/23 62
Modern slavery
The FRC issued a Modern Slavery Act statement in November 2020 demonstrating its
commitment to meeting section 54 of the Modern Slavery Act 2015. The statement, which
was reviewed and updated in 2022, outlines activities taken to support our commitment
and future activities. The FRC does not condone any activity that constitutes modern
slavery or human trafficking under the Act. Our suppliers (and supply chain) should
maintain the same approach and have policies and procedures in place to minimise the risk
of modern slavery occurring.
Payment practices
The FRC complies with the public sector procurement rules as stipulated in the Public
Contracts Regulations 2015. The FRC’s supplier relationships seek to deliver successful,
sustainable solutions. New and existing suppliers must continuously align their approach,
processes and procedures to the core principles relating to minimising risk and compliance
with regulations and legislation. In addition, suppliers should strive for good practice
relating to information security, financial management and business continuity. It is FRC
policy to pay suppliers when or before payments become due and we endeavour to pay
suppliers within 21 days of the date of invoice (achieved in 2022/23: 21 days).
FRC | Annual Report and Accounts 2022/23 63
14. Managing complaints to the FRC
The FRC reviews complaints and referrals received from the public in line with its role in
encouraging confidence in the integrity of accountants, actuaries, auditing and corporate
reporting. The majority of the complaints we receive that are within our remit concern
regulated activities. A small number of complaints are also received about the FRC. A
number of complaints we receive are outside of our remit; these are passed on to the
relevant authorities or bodies that may be able to assist wherever possible.
The FRC has a centralised complaints function to triage complaints and ensure that they
are handled, responded to and resolved appropriately, promptly and consistently. All
policies, processes and procedures are subject to continuous improvement reviews to
ensure that they remain complainant-focused and accessible.
In the course of the year, we updated the website pages with quality standards, our
complaint form and the complaint processes, as well as benchmarking the complaints
process against external standards to ensure that we continue to handle complaints promptly
and consistently.
Following receipt, complaints are triaged to determine whether they fall within our remit
and, if they are, they are then referred for consideration to one of the below teams:
• Corporate Reporting Review: responsible for reviewing accounts of listed, UK
AIM-quoted, and large private companies, as well as limited liability partnerships,
to determine whether they have complied with relevant accounting and reporting
requirements as set out in the Companies Act 2006.
• Case Examiner: responsible for identifying cases that may fall within the remit of one
or more of the FRC’s disciplinary or enforcement procedures (the AEP in relation to
suspected breach by statutory auditors of Relevant Requirements and the Accountancy
and Actuarial Schemes in relation to suspected professional misconduct by members of
the chartered accountancy and actuarial bodies in public interest cases) for referral to
the FRC’s Conduct Committee for a decision as to whether to open an investigation by
the Enforcement division under the applicable procedure.
• Professional Oversight: responsible for providing independent
oversight of the professional accountancy and actuarial bodies, considering the way a
body has handled a complaint that was made to it.
Our published policies and complaints forms include clear guidance on how complaints
will be dealt with, including timelines.
FRC | Annual Report and Accounts 2022/23 64
Complaints in 2022/23
We received 541 complaints during 2022/23, summarised below.
Brought forward (within remit) 20
Incoming complaints 541
Outside remit 474
Closed/resolved complaints (within remit) 81
Carried forward (within remit) 6
The types of complaint received are broken down below.
Complaint nature Number
Conduct or performance of accountant (regulated) 81
Conduct or performance of accountant (unregulated) 123
Conduct or performance of accountant (unknown) 105
Conduct or performance of auditor 37
Financial reporting 43
Actuarial work 1
Actions of professional body 74
Insolvency issue 8
FRC 1
Other/unknown 68
The handling timescales across all cases closed in the reporting period were an average
of 1.2 working days to send an acknowledgement and an average of 3.6 working days for
the outcome.
Of the 541 complaints received, 67 were referred to the relevant department within the
FRC for further review, with 474 complaints being outside our remit. The actions taken in
respect of the complaints considered by the FRC during 2022/23 are set out below.
Where complainants raise issues outside of the FRC's remit, they are referred to other
bodies as appropriate.
FRC | Annual Report and Accounts 2022/23 65
Corporate Reporting Review
The CRR team received 17 complaints related to corporate reporting matters during the
year, of which nine related to matters in the accounts, Directors’ report or strategic report,
which we pursued with the relevant company or we are currently analysing.
The complaints came from a diverse range of parties including private individuals,
investors, fund managers and other companies, and relate to companies ranging from
private and small AIM to FTSE 100. Consistent with our usual practice, and subject to
any relevant confidentiality restrictions, information relating to some complaints was
shared with, or referred to, other relevant authorities including the FCA, the Prudential
Regulation Authority (PRA) and AIM Regulation.
At the beginning of the year, there were 14 open cases relating to complaints about
corporate reporting matters received in earlier years. The actions taken during 2022/23 in
relation to these complaints are illustrated below.
Complaints recieved 2022/23
Not pursued Number
Entity or matter not in scope 7
Insufficient merit 1
Financial statement related
Open 4
Improvements secured notes or/and narrative 2
Improvements secured-primary financial statement restated 1
Financial statement related
Improvements secured 2
FRC | Annual Report and Accounts 2022/23 66
Financial statement related Number
No breach 5
Improvements secured 4
Strategic report related
Improvements secured 3
Open 1
Not pursued
Entity or matter not in scope 1
Cases brought forward 1 April 2022
FRC | Annual Report and Accounts 2022/23 67
Case Examiner
Case Examination and Enquiries opened six complaint cases this year, of which one was a
whistleblowing disclosure.
Eight complaint cases were closed by the team this year:
• One case, in relation to audit, was referred to the Conduct Committee which decided to
open an investigation.
• One case, in relation to audit, where constructive engagement was undertaken with the
audit firm.
• Six cases were closed with no further action taken as our enquiries found that there was
no basis or information to support the complaint.
Professional Oversight
The Professional Oversight team received 44 complaints about the professional
accountancy and actuarial bodies that we oversee and brought forward four complaints
that were ongoing from the previous year. The team conducted a full review of the
professional bodies’ relevant process in ten of these cases, with one further matter still
under review as of 31 March 2023. We made a recommendation for improvements to one
of the bodies in relation to one of these complaints. The remaining 37 matters either fall
outside the team’s complaints handling full review remit, or the complainant has not first
exhausted the professional accountancy body or actuarial body’s complaints procedure.
Professional Oversight responded to 81% of complaints within six weeks. Further
information received by Professional Oversight, including trends, can be found in our
report on our oversight responsibilities for 2022/23, due to be published later this year.
Whistleblowing to the FRC as a prescribed person
Public interest disclosures
Whistleblowing is the term used when an employee passes on information concerning
suspected or known wrongdoing by their employer (also known as ‘making a disclosure’).
The Employment Rights Act 1996, as amended by the Public Interest Disclosure Act 1998,
provides the legal framework for protecting workers from harm if they blow the whistle.
The purpose of a prescribed person is to provide employees with a way of whistleblowing
to an independent body that may be able to act on those concerns.
The FRC is a prescribed person and individuals working outside the FRC, but in the
accounting, auditing or actuarial professions, may contact the FRC if they want to make a
disclosure about their current or former employer in relation to matters that are within the
scope of the FRC’s regulatory remit.
FRC | Annual Report and Accounts 2022/23 68
During 2022/23, the FRC received 51 disclosures in its capacity as a prescribed person. As a
result, we took the following action:
• 44 related to issues not within the remit of the FRC, so whistleblowers were signposted
to the relevant bodies where appropriate.
• 7 were of direct relevance to the FRC’s responsibilities and were addressed by the
relevant teams.
Complaints about the FRC
During 2022/23, one new complaint was received about the FRC. No significant issues
of wider concern were raised and the case was handled under the FRC Complaints
Procedure. The concern raised was regarding dissatisfaction with the FRC’s review of the
handling of their complaint by the relevant professional body. The complaint was reviewed,
investigated and responded to. The complainant exercised their right to have their
complaint escalated to the Independent Complaints Reviewer, who rejected the complaint
and confirmed that the FRC had acted in line with policy and procedure.
FRC | Annual Report and Accounts 2022/23 69
15. Financial review
The operating environment in the UK in 2022/23 was challenging from a political
standpoint, where market confidence was severely affected. The cost of energy due to
the Russian invasion of Ukraine and the aftermath of the global pandemic has made it
difficult to predict costs. The FRC has, however, been able to deliver a resilient financial
performance and this was only possible through the hard work and dedication of all
FRC staff.
At the beginning of the financial year, the FRC Group, comprising the FRC and the UKEB,
had set a budget to fund its regulatory activities, continue the transition to ARGA and
implement new responsibilities following the UK’s exit from the EU. The operating budget
was £59.8m, of which £55.3m was for FRC regulatory activities (including £5.0m for case
costs) and £4.5m for the UKEB.
Expenditure by business activity
11.5 Regulatory Standards
28.4 Supervision
2.8 Actuarial Standards and Regulation
5.1 Enforcement core
-0.4 Accounting case costs
3.7 UKEB
51.1 Total
11.7 Regulatory Standards
21.1 Supervision
2.3 Actuarial Standards and Regulation
5.1 Enforcement core
2.4 Accounting case costs
2.9 UKEB
45.5 Total
Core cost 2022/23 actual (£m)
Core cost 2021/22 actual (£m)
Please note, case costs may vary significantly year-on-year depending on the size and
number of cases concluded.
FRC | Annual Report and Accounts 2022/23 70
Managing our expenditure
FRC Group expenditure for the year shows an increase on the prior year of £5.6m, mainly
driven by headcount changes. Travel costs have increased but with the growing awareness
of the high environmental cost of travelling by air, we will keep this under consideration.
FRC investigation case costs of £6.7m (2021/22: £10.1m) were offset by case cost awards of
£7.2m. In all cases, cost awards are paid to the Recognised Supervisory Bodies (RSBs) who
funded the investigation (the relevant RSB). AEP fine awards were paid to DBT and scheme
fine awards were paid to the sponsoring RSB.
Investing in future growth
In 2022/23, we have continued to make investments in the business to support our strategic
objectives. Total spend in training has increased to £0.5m (2021/22: £0.3m). We spent a
significant proportion of the learning and development budget this year on premium
leadership and management development programmes, courses linked to personal and
continous professional development, and health and wellbeing events, as well as events
to promote greater diversity, equity and inclusion at the FRC. As mentioned, we have
reprioritised our recruitment programme and increased our headcount to 443 at the end of
the financial year.
Managing our funding
The FRC Group receives funding from the audit profession through statutory arrangements
and from the accountancy and actuarial professions, accounts preparers, insurance
companies and pension schemes through non-statutory arrangements agreed with
Government. There is also a small contribution from Government to fund specific projects.
During 2022/23, the FRC has been successful in raising its funding requirement despite
operating in a difficult economic climate. The audit profession contribution received was based
on actual costs incurred. Total revenue from levies were above budgeted amounts by £0.5m
due to several new companies that went public and listed on the London Stock Exchange.
The FRC consulted on ARGA’s statutory funding in 2022 and found broad support to
have funding arrangements that support regulatory independence where stakeholders
are proportionately charged. We are planning to issue a further consultation on an ARGA
funding rulebook before finalising the details in legislation. Unfortunately, we may face
some uncertainties where the timing will be affected. Delay in legislation could negatively
impact our ability to collect the required funding needed to achieve our objectives, and
thereby increase funding risk.
FRC | Annual Report and Accounts 2022/23 71
Funding
Funding by group
2022/2023 total £50.9m
2021/2022 total £46.8m
Other income includes income from publications and electronic rights, and registration
fees from third-country auditors.
Reserves
The FRC currently holds £16.0m of reserves which, as set out in previous Annual Reports,
were established to cover enforcement case costs that are not recovered from audit
professional bodies, unforeseen costs arising from our regulatory activities, and the impact
of any shortfall in our revenue, particularly from the voluntary elements of our funding.
As a public body operating under a remit letter from DBT, we work with DBT to ensure that
any use of reserves is in line with HM Treasury and Cabinet Office requirements.
53%
£26.9m
Accountancy
bodies
48%
£22.8m
Accountancy
bodies
40%
£20.5m
Preparers
39%
£18.3m
Preparers
6%
£2.8m
Actuarial
funding groups
6%
£2.8m
Actuarial
funding groups
2%
£1.1m
Other
2%
£0.5m
Other
-1%
-£0.4m
Enforcement
5%
£2.4m
Enforcement
FRC | Annual Report and Accounts 2022/23 72
Value for money
We have acted in the public interest and attained value for money by using public
resources in a way that creates and maximises public value. We have managed funds
effectively and delivered within budget. Adoption of hybrid working allowed for cost
savings in office rent as we remain with the same working floor space despite a large
headcount increase. We have followed the appropriate procurement process when
engaging with new suppliers and evaluating current supplier performance, thereby
negotiating contracts that can provide value for money.
Functional standards
We have reviewed the newly introduced Government Functional Standards as applicable.
We are comfortable that we are compliant with the relevant mandatory requirements and
will continue to develop adherence as appropriate.
FRC funding sources
The following diagram shows how funding from various stakeholders funds the activities
of the FRC.
FRC | Annual Report and Accounts 2022/23 73
Preparers levy
Pension/Insurance levy/IFoA
Audit firms
DLUHC
Publications
Accountancy firms/RSBs
CCAB
NAO
TCA registration fee
HMRC
Companies House
Government
AQR
AMS
AFS
LASL
A&A
CRR
Enf Core
Enf Case
CG&S
A&R
FRCLab
XBRL
AS&O
PO Core
TCA and E&A
UKEB
Sponsored Departments
Funding Sources
Departments Acronym
Audit Quality Review AQR
Audit Market Supervision AMS
Audit Firm Supervision AFS
Local Audit System Leader LASL
Audit and Assurance A&A
Corporate Reporting Review CRR
Enforcement Core Enf Core
Enforcement Case Enf Case
Accounting and Reporting A&R
Departments Acronym
Corporate Governance
and Stewardship CG&S
Financial Reporting Lab FRCLab
FRC Taxonomies - XBRL XBRL
Actuarial Standards and Oversight AS&O
Professional Oversight Core PO Core
TCA Registration and
Equivalence and Adequacy TCA and E&A
UK Endorsement Board UKEB
FRC
FRC | Annual Report and Accounts 2022/23 74
16. Risk management
Managing the FRC's risks
The FRC’s risk management framework ensures timely identification,
assessment and management of existing and emerging risks. It focuses
on promoting a mature risk culture, effective internal controls, and
active cascading of information. The Board and Audit & Risk Committee
focus on the key or principal risks. Additionally, the Audit & Risk
Committee and Business Committees (Conduct, Supervision, Regulatory
Standards and Codes) review the four divisional risk registers, progress
with deep dive analysis and horizon scanning, and the risk linkage
across the overall organisation.
Last year, we introduced a four faces approach to regulation that
supports the delivery of our strategic objectives and ensures that our
regulatory priorities and risk management approach are appropriately
balanced. Consequently, as part of our ‘Supervisor’ and ‘Enforcer’ roles,
we have adjusted our risk appetite and increased the intensity of our
supervision and monitoring regime to challenge firms to improve audit
quality. As a ‘System Partner’, we are willing to take on high risks, such
as introducing the Audit and Assurance Sandbox and the Scalebox to
encourage greater innovation.
The Audit & Risk Committee, on behalf of the Board, monitors the
risk management and internal control system and has reviewed its
effectiveness this year. It also carried out a robust assessment of
the FRC’s principal and emerging risks, with the outcome of these
assessments reported to the Board. The committee agreed that the risk
management framework is running effectively, with a culture for active
risk discussions that are embedded across all levels, with most audits
receiving a substantial or moderate rating that could be enhanced
with more balancing of the high standards required as a regulator and
ensuring risk management remains proportionate.
We have reviewed our risk appetite statement thresholds to understand
what level will best enable our strategy and plan, where to focus our
efforts, and where we can tolerate greater risk. Following this review,
it was acknowledged that there are practical limitations involved with
controlling or mitigating against information risks while continuing to
operate efficiently. We have therefore adopted a low appetite for market
sensitive or legally privileged risks to limit the potential damage from
disclosure, for example, market instability, personal data or fines, and
a medium stance, to accept a limited degree of risk, for internal data
providing it supports business needs.
Risk is integrated during every step of our planning and budgeting
processes so that all short-term and long-term risks are managed. This
also acts as a basis for good corporate governance.
" Our four
faces
approach to
regulation
ensures
that our
regulatory
priorities
and risk
management
approach are
appropriately
balanced"
FRC | Annual Report and Accounts 2022/23 75
Our risk framework
Board • Determines our overall risk strategy, management
and culture.
• Determines the nature and extent of the significant
risks to be taken to achieve our strategic objectives
(risk appetite).
Audit & Risk Committee
Supervision, Conduct, and
Regulatory Standards and
Codes Committees
• Supports and advises the Accounting Officer and
the Board in oversight of risk management and
internal control systems.
• Reviews effectiveness of risk management
and controls.
• Reviews the risk management in the Corporate
Services division.
• Supports the Board and Audit & Risk Committee
in examining risks of particular relevance to
the Supervision, Enforcement and Regulatory
Standards divisions.
Executive Committee • Sets the tone from the top.
• Establishes a positive risk culture.
• Conducts deep dives into principal risks.
• Cascades risk and control information.
First line of defence • Timely identification, assessment and
management of existing and emerging risks
to achieve strategic objectives.
Second line of defence –
the Corporate Risk
Management Team
• Timely and accurate reporting and escalating of
risk and control information.
• Building risk capability.
• Providing assurance on risk management activity.
Third line of defence – the
internal auditors
• Provides independent assurance on risk
management and internal control systems.
FRC | Annual Report and Accounts 2022/23 76
Our ongoing work to enhance and improve our risk management framework continues to
help identify and manage risks that may prevent us from delivering our strategy or serving
the public interest. In terms of the risk management principles set out in HM Treasury’s
Orange Book, we have:
Governance
and leadership
• Implemented good divisional adoption of the
framework and consideration of risk-based
decisions across teams following introduction of a
medium-term plan to increase risk maturity across
the organisation.
• Continued regular risk reviews at the Audit & Risk
Committee with some discussions taking place within
sub-committees, and periodic deep dives, sponsored
by the Executive Directors, to consider current and
developing risks and whether they are significant and
should be included in our principal risks.
• Held discussions at the relevant committees to
enable proportionate scrutiny, avoid duplication,
and ensure compliance with the UK Corporate
Governance Code.
Integration • Conducted risk identification sessions with the
Executive Committees and teams, in particular
senior leaders, to identify emerging threats and
ensure that risks remain relevant and managed at
the appropriate level.
• Continued engaging with the Risk and Control
Champions with quarterly network meetings to
further support and embed risk at team level and
develop a range of support materials, bitesize
videos and one-pagers, and revamped our
induction programme.
• Integrated horizon scanning across the
organisation to enable timely and proportionate
decision-making.
FRC | Annual Report and Accounts 2022/23 77
Collaboration and best
information
• Increased the quality of risk reporting data and
analysis, including developing control KPIs and
key risk indicators, to better evaluate the impact
of our actions and enable more agile risk
management strategies.
• Encouraged top-down and bottom-up risk reviews
at all levels to contribute to and support more
informed risk management and decision-making.
This has resulted in two new principal risks,
reflected in the following table, and one principal
risk being de-escalated.
Risk management processes • Introduced new software to increase accessibility,
collaboration and assurance, and support more
informed decision-making.
• Conducted exercises to test our resilience to cyber
threats and responses to market disruption.
• Conducted a corporate policy review and made
recommendations to help strengthen and assure the
effectiveness of our internal control environment.
• Raised the visibility of the risk function and
principles with all staff.
Continual improvement • Ensured our Internal Audit plan is aligned to the
strategic business case, key risks and increased
overall level of assurance.
• Developed updated training to build upon the
skills, knowledge and tools available to staff and
budget holders to manage risk in line with the
FRC’s risk appetite and Managing Public Money.
FRC | Annual Report and Accounts 2022/23 78
Principal risks as of 31 March 2023
The detailed principal risks are set out overleaf, mapped against our objectives.
Set high standards in corporate governance and stewardship, corporate reporting,
auditing and actuarial work and assess the effectiveness of the application of those
standards, enforcing them proportionately where it is in the public interest.
Promote improvements and innovation in the areas for which we are responsible,
exploring good practice with a wide range of stakeholders.
Influence international standards and share best practice through membership of
a range of global and regional bodies, and incorporate appropriate standards into
the UK regulatory framework.
Create a more resilient audit market through greater competition and choice.
Transform the organisation into a new, high-performing, robust and independent
regulator, acting in the public interest.
FRC | Annual Report and Accounts 2022/23 79
FRC objectives
Principal risks
Objectives Principal risk
1. Due to political and other pressures, regulatory reforms are
delayed or ineffective so fail to improve public confidence in the
regulatory regime and the FRC/ARGA.
Top three mitigations Trend Position
against
appetite
• We have created a programme plan that
provides for policy work with Government
(at a pace outside of our control)
simultaneous with progressing all non-
legislative actions within our control.
• We have ensured strong FRC representation
on joint programme governance forums
with DBT.
• We have delivered a broad and balanced
stakeholder outreach and engagement
programme on the topic of reform.
This risk degraded slightly
this year due to the
continued lack of legislative
certainty. We have again
relied on a set of high-level
assumptions for planning
purposes, while accepting
that many factors remain
outside of our control.
During the year, we took
action on non-legislative
elements of reform, as
set out in our July 2022
Position Paper.
Within
appetite
FRC | Annual Report and Accounts 2022/23 80
Objectives Principal risk
2. Regulatory Standards, Supervision and Enforcement fail to drive
the necessary behaviours and outcomes to deliver consistently
high standards.
Top three mitigations Trend Position
against
appetite
• We are represented on international standard
setting boards for auditing, assurance and
ethics. We also influence other standard
setting boards by actively participating in
consultations. This and feedback from our
audit inspections, wider supervision and
enforcement work provides us with a strong
evidence base that our standards are fit
for purpose and are updated to respond to
new and emerging risks, alongside extensive
stakeholder outreach. We carry out horizon
scanning, informed by our engagement to
identify and address emerging issues.
• We work closely with other national standard
setters and international standard setting
bodies to ensure that stakeholder concerns
are addressed. For example, we provided
the ISSB with high quality comment letters
that influence standards development and
informed dialogue with other jurisdictions on
areas of common interest.
• Regulatory Standards receives feedback
from Supervision and Enforcement to
draw on lessons learned from their work,
to identify potential issues arising from
monitoring work and enforcement cases
that need to be revised in standards, and to
ensure feedback provided to international
standard setting bodies reflects the needs
of wider FRC regulatory responsibilities;
similarly, Supervision and Enforcement draw
on expertise from Regulatory Standards as
required. Liaison between all three divisions is
close and continuous.
Stable. We continue to
deliver a programme
of work to influence
the development of
international standards,
and make revisions to
UK standards to drive
behaviours and outcomes.
These are informed by
diverse feedback gathered
from our work and
stakeholder engagement.
Within
appetite
FRC | Annual Report and Accounts 2022/23 81
Objectives Principal risk
3. Corporate reporting and audit quality remains inconsistent,
resulting in reduced investor/stakeholder confidence and
reputational damage to the FRC.
Top three mitigations Trend Position
against
appetite
• We are increasing the intensity of our
forward-looking supervision of major
audit firms including assessment, and
where applicable the work of our AQR and
CRR teams. We have taken over decision-
making on registration of PIE audit firms
and auditors and are monitoring the
implementation of ISQM1 at the audit
firms (including non-PIE firms overseen by
the bodies).
• We refer failures in standards for
Enforcement action as appropriate. We are
creating a joined-up regulatory approach
across standard setting, supervision and
enforcement priorities, and audit firms have
an obligation to report breaches of ethical
standards to the FRC.
• The FRC as the Competent Authority
monitors the compliance of delegated
agreements between the FRC and RSBs. We
can require RSBs and Required Qualifying
Bodies (RQBs) to take remedial action
and have the power to inspect and gather
evidence on RSB and RQB effectiveness.
Improving. Early indications
from AQR and Audit Market
Supervision (AMS) suggest
that audit quality at the
major firms continues to
improve. We are seeing
indications of a trend of
improving audit quality and
we expect this to continue.
Companies continue to
respond constructively
to CRR’s interventions,
demonstrating willingness
to improve the quality of
their corporate reporting
and meet expectations of
better practice.
Tolerated
FRC | Annual Report and Accounts 2022/23 82
Objectives Principal risk
4. Audit market is severely disrupted by failure of, or partial
withdrawal from, a segment of the market by a major audit firm.
Top three mitigations Trend Position
against
appetite
• The 2021 BEIS White Paper and Government
Response proposed a managed shared
audit regime to reduce the market share of
the Big Four in the FTSE 350, and proposed
requirements to safeguard the resilience of
major audit firms.
• We are supervising enhancements to recovery
plans for major audit firms and audit firms
notify us of any major risks or incidents
arising elsewhere in their network. PIE auditor
registration could potentially be used to set
resilience requirements on audit firms.
• We are increasing supervision of all PIE
audit firms to identify areas of poor audit
quality and to hold them accountable
for remediation.
Stable. We are getting more
assurance over the risk
management processes
in Tier 1 firms. Audit firms
continue to be financially
robust. We issued our
Position Paper following the
Government Response in
July 2022.
Within
appetite
Objectives Principal risk
5. Failure to maintain data privacy/confidentiality due to un/
intentional ex/internal release of data including through cyber
attack, resulting in loss of sensitive data (personal/corporate),
breach of law/ regulation, fines, censure and reputational
damage to the FRC.
Top three mitigations Trend Position
against
appetite
• A rolling programme of staff training
and awareness around cyber risk and
information loss.
• A suite of preventative applications and
tools to deter unintended information
sharing, and reporting tools.
• Renewal of the Cyber Essentials Plus
certification and contingency planning testing.
Steady progress. Cyber
Essentials Plus certification
has been renewed and
a cyber test exercise
has been undertaken.
Good levels of training
completed by all staff.
Tolerated
FRC | Annual Report and Accounts 2022/23 83
Objectives Principal risk
6. As a result of limited information sharing within the FRC and
lack of a holistic overview, we fail to proactively exploit data/
information which reduces our effectiveness with potential
reputational damage.
Top three mitigations Trend Position
against
appetite
• Adoption of an information management
strategy to improve document classification
and the data and document glossary.
• Enhanced data and analytical capabilities
and reporting.
• Governance and consultation around the
use and publication of data to support
decision-making.
Improving. The adoption
of document classification
and a data glossary will
facilitate access to and
sharing of information.
The development of an
analytical tool is supporting
business needs.
Outside
appetite
Objectives Principal risk
7. Due to lack of clarity on the FRC’s role, we fail to meet
stakeholder expectations on ESG reporting and related monitoring
and enforcement activities.
Top three mitigations Trend Position
against
appetite
• We continue to engage with Government
and with international standard setters over
the development of reporting requirements
and standards to support high quality
reporting, and also work with other UK
regulatory authorities to ensure that our
objectives are aligned.
• We have developed impactful responses
to international consultations, which
have been widely referred to by UK and
international stakeholders.
• We have continued to leverage the work
of the FRC ESG and Climate Group to focus
our work and set clear market expectations
ahead of formal powers to monitor and
enforce reporting.
Improving. We have
demonstrated our ability
to be impactful and deliver
work that meets the needs
of UK stakeholders and
brings clarity to a complex
landscape. Formalising the
UK legal and regulatory
framework is a matter
for ministers and will
require legislation.
Within
appetite
FRC | Annual Report and Accounts 2022/23 84
Objectives Principal risk
8. Due to a lack of capacity, capability and inability to manage our
conflicting roles, the FRC fails to deliver effective shadow system
leadership. This leads to a lack of trust and confidence in our ability
to drive a coherent system response to local audit challenges.
Top three mitigations Trend Position
against
appetite
• The MoU is in place with DLUHC which
provides clarity on the FRC's role and
responsibilities as shadow system leader
ahead of ARGA. We have established a
dedicated local audit unit and recruited to
key posts.
• By June 2023, we will issue a position
statement setting out our diagnosis of the
issues, the actions we think need to be
taken, and how we plan to deliver our role
as system leader including short, medium
and long-term priorities.
• By the summer of 2023, we will become
Chair of the Liaison Committee of senior
local audit stakeholders and will use
our convener role to set clear priorities
for action, hold all parties to account
on delivering these and make policy
recommendations to DLUHC as necessary.
This is a new risk to the FRC.
We will monitor and report
progress as we commence
our shadow system
leader role.
To date we have made
significant progress to be
ready for this role including:
• Publication of the MoU
in March 2023.
• Recruitment to key posts
(e.g. Director and Deputy
Director of Local Audit)
and on track for the
remaining positions.
• Following extensive
engagement and research,
setting out our emerging
views on whole system
risk, actions, and short,
medium and long-term.
Within
appetite
FRC | Annual Report and Accounts 2022/23 85
Risk appetite
definitions:
Very low – Avoidance of risk and
uncertainty is a key objective.
Low – Preference for ultra-safe options
that are low risk and only have a potential
for limited reward.
Medium – Preference for safe options
with little risk and reasonable rewards.
High – Willing to consider all potential
options (including higher levels of risk)
and choose the one most likely to result in
successful delivery and increased rewards.
Very high – Eager to be innovative and
choose activities offering potentially very
high rewards, even if these activities carry
a very high inherent risk.
Risk appetite
definitions:
Within appetite –
The right people and
processes in place are in
place to manage the risk.
Tolerated –
The risk is being
tolerated and subject
to active monitoring.
Outside appetite –
Risk is of immediate
concern and subject to
continuous oversight.
Time horizon
definitions:
This is the period
within which
the risk could
potentially
materialise.
Short-term:
Within one year.
Medium-term:
One year to five
years.
Long-term:
Over five years.
FRC | Annual Report and Accounts 2022/23 86
Governance
FRC | Annual Report and Accounts 2022/23 86
Governance
FRC | Annual Report and Accounts 2022/23 86
Governance
FRC | Annual Report and Accounts 2022/23 87
17. Chair's introduction
I am pleased to present our governance review, which sets out how
the Board and its committees operated during 2022/23, my first
full year as Chair of the FRC. It has been a busy but rewarding year
for the Board, overseeing significant progress in our continued
work to raise standards and be an impactful, assertive regulator.
In July 2023, we will have said thank you and farewell to both John Coomber
and Sir Jon Thompson. John has made a valuable contribution to the work
of the FRC over nearly nine years in a number of roles, most recently as
Chair of the Supervision Committee and as Senior Independent Director. I
am pleased that Ruwan Weerasekera has agreed to take on the role of Chair
of the Supervision Committee, and that Clare Thompson will be taking on
the role of Senior Independent Director. The search for our new CEO to take
over from Jon is progressing well and, in the meantime, Sarah Rapson has
successfully stepped into her new role as Deputy Chief Executive.
We have also recently revised the membership of our People Committee,
which predominantly deals with the various aspects of talent management
at the FRC. For 2023/24, the committee will be populated by the full suite of
Board members, and I will take on the role of the committee’s Chair.
Ultimately, the role of the FRC Board is to provide strategic leadership
and constructive challenge, particularly in the delivery of its
Transformation Programme as we transition to ARGA. We're well on
our way towards becoming the new regulator, while also delivering
against our strategy and ensuring that the organisation robustly delivers
against its mandate. To support this transition, we also conducted the
annual Board and Committee Effectiveness Review, which found that the
new structure is effective. Further details on actions that will be taken
forward in light of the review can be found on page 106.
There is a lot that we should be proud of – it is clear that we’ve
come a long way since Kingman, and the way that individuals in this
organisation have contributed to that must be recognised. We’re doing
everything we can to convey to every stakeholder the importance of our
work, supported by the entire organisation from our staff on the ground
to our committees and our Board.
We’ll continue to drive forward our work to emphasise the need for us to
have the powers to do a truly effective job. Indeed, the future continues
to be bright for the FRC as an influential and impactful regulator.
Sir Jan du Plessis
FRC Chair
Sir Jan
du Plessis
Chair
" There is a
lot that we
should be
proud of"
FRC | Annual Report and Accounts 2022/23 88
18. Governance and transparency
The FRC is an arm’s length body of the Government and a private company limited by
guarantee. It reports to the Secretary of State for the DBT, and to Parliament on the
discharge of its functions. The Secretary of State for Business and Trade appoints the Chair
and NEDs to the FRC Board, which is responsible for the FRC’s strategy and monitoring its
implementation.
Our governance structure is designed to provide the Board with the assurance and
confidence that any proposals considered by them take account of the impact on our
stakeholder community. Further information on how the FRC engages with stakeholders is
available in chapter 11.
Our structure
FRC Board
Regulatory
Standards and
Codes Committee
Role: regulatory
standards and
codes functions
Supervision
Committee
Role: supervisory
and monitoring
functions
Non-Executive Advisory Panel
A pool of subject specialists
to be called on by the
Executive/Committees
Conduct
Committee
Role: enquiries,
investigations
and enforcement
functions
People Committee
Role: remuneration,
succession
planning and talent
management
Audit & Risk
Committee
Role: oversight of
financial reporting,
internal audit and
risk control functions
Enforcement
Committee
Panel
(arms length)
Tribunal Panel
(arms length)
Senior Advisers
Executive
Committee
Role: manages
day-to-day
operations –
resources, policies
and programmes
FRC | Annual Report and Accounts 2022/23 89
Corporate governance statement
As a private limited company, the UK Corporate Governance Code does not apply
to the FRC. However, as the regulator of the Code, the FRC upholds high standards
of transparency, accountability and integrity, and aligns itself with the principles and
provisions of the Code where they are relevant and applicable. As an arm’s length body,
the FRC also follows the Corporate governance in central government departments: code
of good practice and the Regulators’ Code. Areas of departure from these Codes are
explained below.
Engagement with shareholders (Principle D)
As a private company limited by guarantee, the FRC has no shareholders. However, as a
Non-Departmental Public Body, the FRC presents its Annual Report and Accounts to the
Secretary of State for Business and Trade, and the Directors fulfil their duties as required
under sections 170 to 177 of the Companies Act 2006.
Appointments to the Board (Principles J and K)
Appointments to the FRC’s Board are made by the Secretary of State in accordance with
the Public Appointments Process, which is not within the FRC’s control. The FRC does not
have a Nominations Committee, but our People Committee oversees succession planning
and the skill/experience requirements for any new appointees. A member of the FRC Board
sits on the recruitment panel to ensure that the skills and experience required on the FRC
Board are taken into consideration.
Composition, succession and evaluation (Provision 18)
The Directors are not subject to annual shareholder re-election. The terms of appointment
are set by the Secretary of State following a rigorous Public Appointments Process. The
Chief Executive is employed under a fixed-term contract.
FRC | Annual Report and Accounts 2022/23 90
Audit, risk and internal control (Provision 30 and 31)
The Board supported the view that a viability statement would not be included, and
the financial statements should continue to be prepared on a going concern basis. The
financial statements confirm that it is appropriate to adopt the going concern basis of
accounting and a 3-Year Plan (2023-26) was approved by the Board on 24 March 2023. In
addition, as a Central Government Body under the sponsorship of DBT, the FRC receives a
Letter of Comfort from DBT which provides an assurance of financial support.
Remuneration (Principles P, Q and R and Provisions 32 to 28)
As a Central Government Body, the FRC follows Public Sector Pay Guidelines and there is
greater oversight from DBT, HM Treasury and the Cabinet Office in relation to remuneration
decisions across the organisation.
The FRC has a limited ability to determine remuneration and does not have a
Remuneration Committee. However, the People Committee is responsible for
recommending submissions to DBT regarding staff pay awards and advising the
Secretary of State on the proposed fees for Directors. These proposals are considered by
benchmarking the organisation against similarly paid professionals within the sector and
NEDs at equivalent organisations.
Corporate governance in central government departments:
code of good practice
Principle 3.3
“The Board should be balanced, with approximately equal number of ministers, senior
officials and non-executive board members.”
As the FRC is not a government department, this principle is not applicable.
FRC | Annual Report and Accounts 2022/23 91
19. Our Executive Committee
The Executive Committee meets weekly and is chaired by the CEO. It is an opportunity for
the Executive to discuss operational, strategic, financial, reputational and workforce matters
in support of the day-to-day running of the organisation and to further the objectives
established by the Board.
The Executive Committee is also responsible for managing the operations of the FRC in
accordance with the Framework Agreement agreed with DBT.
Key areas of focus for the committee
• Strategy: including the development of the Strategy, Plan and Budget, transformation
strategy and office location plans. The committee also monitored progress against
agreed objectives.
• Operational: including reports from the Finance Director on management accounts,
procurement, IT (including cyber security) and office management matters.
• Risks and internal controls: in addition to routine risk reports, the committee engaged
in deep dives on the FRC’s principal risks and considered the effectiveness of the FRC’s
internal control and risk management framework.
• People: including key people-related policies, FRC culture, staff survey results and
hybrid working arrangements.
• Stakeholder engagement: including review of the stakeholder perceptions survey,
approval of a new communications planner to enable us to better target information
to our stakeholders, and consideration of feedback on key stakeholder matters and
responses to FRC publications. This informs our future policy work and offers insight to
possible future issues and areas of work. The committee also focused time on internal
communications and messaging.
• Policy: including both internal and external policy positions.
FRC | Annual Report and Accounts 2022/23 92
Executive Committee members (as of 31 March 2023)
Sir Jonathan Thompson
Chief Executive Officer, Statutory Director
and Accounting Officer (until 31 July 2023)
Role
Sir Jon leads the Executive team and is
responsible for the implementation of the
FRC strategy. As Accounting Officer, he
ensures that the FRC is run in accordance
with the Framework Agreement agreed
with DBT, the requirements of the
Managing Public Money principles, and
any additional instructions and guidance
issued from time to time by DBT, HM
Treasury and the Cabinet Office, while
maintaining the FRC’s position as an
independent regulator.
Experience
Sir Jon brings experience of working with
government bodies and has enjoyed a
lengthy career in finance. Prior to joining
the FRC, Jon was the CEO of HMRC, and
previously Permanent Secretary of the
Ministry of Defence. He has extensive
experience of delivering change and
programme management, as well as
deep experience of finance and corporate
governance as a former Head of the
Government Finance Function and the
CFO of four organisations.
Mark Babington
Executive Director,
Regulatory Standards
Role
Mark leads the FRC’s Regulatory Standards
division covering audit, corporate
reporting, corporate governance and
stewardship, actuarial policy and the
FRC Lab. Prior to joining the Executive
Committee, Mark led the FRC’s UK Audit
Policy Programme and work to support
the reform of international standard
setting for auditors by global regulatory
authorities. He is a member of IESBA
and chairs the Board’s Sustainability Task
Force, and represents the UK on the
Sustainability Standards Advisory Forum of
the ISSB.
Experience
Before joining the FRC, Mark was a
Director at the UK National Audit Office,
leading the audits of a number of major
Government departments. For five
years, Mark was a member of the UK
Government’s counter-fraud taskforce.
He is a former Chair of the International
Colleges of Auditors of several European
defence-related organisations. Mark is an
Independent Governor, Board member and
Chair of the Westminster Foundation for
Democracy, the UK public body dedicated
to supporting democracy around the
world.
FRC | Annual Report and Accounts 2022/23 93
Elizabeth Barrett
Executive Counsel and Executive Director
of Enforcement
Role
Elizabeth leads the FRC’s Enforcement division
and is responsible for decisions in relation to
enforcement proceedings involving auditors,
accountants and actuaries.
Experience
Elizabeth spent 30 years at Slaughter and
May, including 27 years as a partner, and
was head of the firm’s Dispute Resolution
department between 2004 and 2008.
Her practice spanned a broad range
of complex litigation and contentious
regulatory matters in the commercial and
financial sectors covering both private and
public law.
Miranda Craig
Director of Strategy and Change
Role
Miranda leads the FRC’s Transformation
Programme, bringing together and
implementing the FRC’s ambitious
audit, corporate governance and
reporting reforms. Her role also includes
development of the FRC’s strategy and
improving project delivery capability via
the Project Management Office.
Experience
Miranda is a Fellow of the Chartered
Governance Institute with 17 years’
experience across professional services,
large private and listed companies, having
qualified while at Ernst & Young. She has
also held senior secretariat roles at Safe
Group plc, ARM, R&Q and EDF Energy.
Miranda spent 2019 seconded to BEIS
leading on the Independent Review
into the Quality and Effectiveness of
Audit, supporting Sir Donald Brydon’s
comprehensive review of audit, its
purpose, user needs and future direction.
FRC | Annual Report and Accounts 2022/23 94
Alex Kuczynski
General Counsel and Executive Director of
Corporate Services
Role
Alex is responsible for the Corporate
Services division which comprises
the General Counsel team, Finance
(including risk, procurement and
facilities), Human Resources, Information
Technology, and Economics, Strategy
and Analytics. The role brings together
the professional and support services for
the FRC. Its effectiveness is critical to the
Transformation Programme.
Experience
Prior to joining the FRC, Alex was Chief
Corporate Affairs Officer and an Executive
Board Director at the Financial Services
Compensation Scheme (FSCS). As a lawyer,
Alex was firstly Head of Legal at FSCS, but
over 20 years with the organisation held
various roles and worked on a wide range
of financial services issues, particularly
those concerned with actual or potential
consumer detriment across investment
business, insurance and banking, and often
collaborating closely with Government,
regulators and industry stakeholders.
Kate O'Neill
Director of Stakeholder Engagement and
Corporate Affairs
Role
Kate leads the Stakeholder Engagement
and Corporate Affairs function with
responsibility for delivering a coordinated
international engagement programme
for all stakeholders across the whole of
the FRC’s remit. She is also responsible
for marketing and brand, employee and
change communications, media relations,
digital communications and public affairs.
Experience
Previously, Kate was Head of Corporate
Development at Jupiter Asset
Management, where she was responsible
for corporate strategy, investor relations
and communications. She was the
Managing Director of Investor Relations
at Lloyds Banking Group during the
financial crisis, before becoming a Partner
at Brunswick and then at Maitland
advising global clients on capital markets
and communications issues. After
qualifying as a lawyer, Kate spent most of
her career in the financial services sector
in the UK, Europe and Australasia, holding
senior leadership roles in distribution
and alternative assets at AMP Asset
Management, Henderson Global Investors
and RBS Asset Management.
FRC | Annual Report and Accounts 2022/23 95
Sarah Rapson
Executive Director of Supervision and
Deputy Chief Executive
Role
Sarah is responsible for leading the FRC’s
Supervision division and its work to enhance
audit quality both through standard
setting and audit monitoring of firms,
supervisor oversight of the Recognised
Professional Bodies, and promoting
improvement in corporate reporting
through detailed technical reviews of
companies’ Annual Reports and Accounts.
Experience
From 2016 to 2021, Sarah was the Director
of Authorisations at the FCA. From 2013
to 2016, she was a member of the Home
Office Board as the first Director General of
UK Visas and Immigration, responsible for
overseas visas, in-country immigration and
asylum. Sarah was also Chief Executive of
the Identity and Passport Service (now HM
Passport Office) from 2010 to 2016, and in
2010 was also appointed by Her Majesty
the Queen as the 20th Registrar General
for England and Wales responsible for Civil
Registration, a post she held until 2014.
She is currently the Senior Independent
Director of North Middlesex University
Hospital Trust and, from December 2021,
is also a NED of the Royal Free London
NHS Foundation Trust.
FRC | Annual Report and Accounts 2022/23 96
20. Our Board and committees
The Board is responsible for the strategic direction and supervision of the FRC, regularly
reviewing operational plans and financial performance. It is also responsible for managing,
assessing and mitigating risk. Of the nine Board members, eight are Non-Executive and
independent members, and one is executive (the CEO). The Board has delegated its
functions under the enforcement and disciplinary procedures to the Conduct Committee.
The Board met ten times in 2022/23.
The roles of the Chair and the Chief Executive are held separately, ensuring a clear separation
of responsibilities in line with the Corporate Governance Code. The Chair leads the Board and
ensures its effectiveness through the management of Board meetings, agenda setting and
supporting the optimisation of Board discussions. The Chair also takes a leading role in Board
succession planning and ensuring effective communication with stakeholders.
As the Accounting Officer, the Chief Executive is personally responsible for safeguarding
the public funds under their control, for ensuring propriety and value for money in the
handling of those public funds, and for the day-to-day operation and management of
the FRC. The Chief Executive has a responsibility to the Permanent Secretary for Business
and Trade as the Principal Accounting Officer for all public bodies in the DBT family, who
delegates powers directly to the Chief Executive through a Framework Agreement.
The Board discharges some of its responsibilities directly through Reserved Powers, and
others through its two Governance Committees and three Regulatory Committees. The
committees comprise of independent NEDs of the Board and are assisted by Senior
Advisers who are subject matter experts and act as a sounding board for ongoing
issues and topics. Observers from the FCA and DBT routinely attend the Regulatory
Standards and Codes Committee. Representatives from the National Audit Office (NAO)
and the Government Internal Audit Agency (GIAA) attend meetings of the Audit & Risk
Committee, and a member of the BEIS Audit Committee attended the committee’s
October meeting.
The biographies for all members of the governance structure, the Reserved Powers of the
Board and the Terms of Reference for each committee, together with a summary of Board
business, is published on the FRC website.
FRC | Annual Report and Accounts 2022/23 97
Chair
Appointed 3 February 2022
Attendance: 10 of 10
Experience
Sir Jan has served as Chair of
various public companies over
the last 18 years: BT Group plc
(2017 to 2021); Rio Tinto plc (2009
to 2018); SABMiller plc (2014 to
2016); RHM plc (2005 to 2007);
and British American Tobacco plc
(2004 to 2009). These roles have
given him extensive experience
in leadership and governance
of major public companies.
He has also had multiple
interactions with the institutional
investment community and
gained meaningful insight into
the challenges facing the audit
services sector.
Sir Jan has also served as NED
of Marks and Spencer Group plc
and Lloyds Banking Group plc.
From 1988 to 2004, he was CFO
of Richemont.
Sir Jan was knighted in the 2022
New Year’s Honours List for
services to Telecommunications
and Business.
External appointments
Sir Jan is Mentor and Adviser of
Chair Mentors International.
Sir Jonathan Thompson
Chief Executive Officer
and Accounting Officer
Appointed 1 October 2019
Attendance: 10 of 10
Experience
Sir Jon brings experience of
working with Government bodies
and has enjoyed a lengthy career
in finance. Prior to joining the
FRC, Sir Jon was the CEO of
HMRC, and previously Permanent
Secretary of the Ministry of
Defence, jointly leading the
£36bn organisation with the
Chief of the Defence Staff.
He has extensive experience
of delivering change and
programme management, as well
as deep experience of finance
and corporate governance as a
former Head of the Government
Finance Function and the CFO of
four organisations.
Sir Jon chairs the Executive
Committee.
External appointments
Sir Jon is the Chair of Crown
Hosting Data Centres Ltd, an
unpaid position. He is also the
Chair of HS2 Ltd.
Board members (as of 31 March 2023)
P
Audit and Risk
People
Conduct
Regulatory
Standards
and Codes
Supervision
Bold and
black keyline
denotes
Chair of the
Committee
Full
biographical
details of each
Director are
available at
www.frc.org.uk
Key to
Committees
RSC
P
AR
S
C
FRC | Annual Report and Accounts 2022/23 98
Independent Non-Executive
Director
Appointed 1 February 2022
Attendance: 10 of 10
Experience
Angela is a solicitor and a former
partner at the international law
firm, Pinsent Masons, where she
was joint head of the financial
services sector group and head
of the outsourcing, commercial
and technology practice in
London. She specialised in
advising financial services
sector clients on major change
and business transformation
projects. After her private
practice career with Pinsent
Masons, Angela continued
her legal career, working with
financial services sector clients
on a consulting basis.
External appointments
Angela is a NED on the Board
of Bath Building Society,
where she is Vice Chair and
Senior Independent Director,
and a member of the Audit,
Remuneration and Nominations
Committees. Outside of the
financial services sector, Angela
is a co-opted member of the
Finance, Audit & Risk Committee
at the NSPCC.
Independent Non-Executive
Director and Senior Independent
Director
Appointed 23 July 2015
Attendance: 9 of 10
Experience
John has extensive actuarial and
senior management experience.
He was CEO of the Pension
Insurance Corporation (2009 to
2015) and at Swiss Re (2003 to
2005). He has previously been
Chairman of MH (GB) Limited, The
Climate Group and Climatewise,
a Director of Euler Hermes and
a member of the Deutsche Bank
Climate Advisory Board.
John is a Fellow of the IFOA
and an Honorary Fellow of the
Chartered Insurance Institute.
External appointments
John is a NED of Ecospray Ltd.
RSC
AR
S S
Audit and Risk
People
Conduct
Regulatory
Standards
and Codes
Supervision
Bold and
black keyline
denotes
Chair of the
Committee
Full
biographical
details of each
Director are
available at
www.frc.org.uk
Key to
Committees
RSC
P
AR
S
C
C
FRC | Annual Report and Accounts 2022/23 99
Independent Non-Executive
Director
Appointed 1 February 2022
Attendance: 10 of 10
Experience
Sir Ashley is a business
consultant providing strategic
advice on the European Union.
He served as a Member of the
European Parliament (MEP) for
the South West of England and
Gibraltar from 2009 to 2019.
During his career in the European
Parliament, Sir Ashley was a
member of the Committee for
Economic and Monetary Affairs
and the Committee on Industry,
Research and Energy. He was
knighted in 2019 for political and
public service.
Before entering politics, Sir
Ashley was a solicitor specialising
in insurance litigation.
External appointments
Sir Ashley is the Chair and NED
of the Independent Monitoring
Authority and a member of the
APCO Worldwide’s International
Advisory Council.
Independent Non-Executive
Director
Appointed 24 June 2021
Attendance: 10 of 10
Experience
Hannah has widespread
experience in economics and
regulation across a range of
industries. She brings significant
experience of developing,
implementing and enforcing
regulatory regimes and
influencing public policy. She
was the first CEO of the Payment
Systems Regulator, the economic
regulator of the UK’s £80 trillion
payments industry, responsible
for driving competition and
innovation in the interests of
consumers. Hannah was also a
senior Partner at Ofgem, where
she had responsibility for the
networks division. Until recently,
she was also a NED of the Jersey
and Guernsey Competition and
Regulatory Authorities.
External appointments
Hannah is currently Chair of the
Single Source Regulations Office,
and a NED of Thames Water
Utilities Ltd, Worldpay and National
Grid Electricity System Operator.
RSC
RSC AR
S
Audit and Risk
People
Conduct
Regulatory
Standards
and Codes
Supervision
Bold and
black keyline
denotes
Chair of the
Committee
Full
biographical
details of each
Director are
available at
www.frc.org.uk
Key to
Committees
RSC
P
AR
S
C
C
FRC | Annual Report and Accounts 2022/23 100
Independent Non-Executive
Director
Appointed 1 February 2022
Attendance: 9 of 10
Experience
Clare was a Partner at PwC until
her retirement in 2011. There
she was audit/lead Partner on
major financial services groups
and served as UK Insurance
Leader and a member of the UK
Assurance Executive team.
Since leaving PwC, she has built
a portfolio of non-executive
roles and has served as Senior
Independent Director and Chair
of the Audit Committee of Bupa,
as a NED of Direct Line Insurance
Group plc, Retail Charity Bonds
plc, and Miller Insurance Services
LLP and as Treasurer of the
Disasters Emergency Committee.
Clare is a Fellow of the ICAEW.
External appointments
Clare is a NED and Chair of the
Audit Committee at M&G plc.
Independent Non-Executive
Director and NED designated for
workforce engagement
Appointed 21 June 2021
Attendance: 9 of 10
Experience
Ruwan is the former COO and a
Managing Partner of SoftBank
Investment Advisers, a Managing
Director and COO for Securities
at UBS Investment Bank and
Partner of Accenture.
He is also a former Senior
Independent Director of ICBC
Standard Bank PLC and a former
NED of London North West
University Health Care Trust.
He brings 35 years’ experience
across financial services and 15
years in senior leadership and
Director positions. He has an in-
depth knowledge and experience
of operating complex businesses
on a global basis with a focus
on leveraging technology,
implementing strategy and
change, and embedding and
managing conduct, culture and
controls.
External appointments
Ruwan is a NED of UK Research and
Innovation, and chairs their Audit
and Risk Assurance Committee.
RSC
P
P
AR
ARS
Audit and Risk
People
Conduct
Regulatory
Standards
and Codes
Supervision
Bold and
black keyline
denotes
Chair of the
Committee
Full
biographical
details of each
Director are
available at
www.frc.org.uk
Key to
Committees
RSC
P
AR
S
C
FRC | Annual Report and Accounts 2022/23 101
Independent Non-Executive
Director
Appointed 1 February 2022
Attendance: 9 of 10
Experience
David is a solicitor by profession
and was a partner in international
law firm, Herbert Smith Freehills
(and predecessor firm Herbert
Smith) for many years. He was
Managing Partner of Herbert
Smith from 2008 to 2012 and
Joint CEO of Herbert Smith
Freehills from 2012 to 2014. He
was previously a member of the
governing body of Queen Mary
University of London, where
he chaired the Audit & Risk
Committee, and a member of the
board of the Solicitors Regulation
Authority, where he chaired the
Finance and Audit Committee
and was a member of the Law
Society Group Audit Committee.
External appointments
David is currently Chair of
Paradigm Trust, a multi-academy
trust, and Vice Chair of United
Response, a charity supporting
adults with learning disabilities,
where he chairs the Finance and
Resources Committee. He is also
a NED and member of Primrose
Street Ltd.
P
Audit and Risk
People
Conduct
Regulatory
Standards
and Codes
Supervision
Bold and
black keyline
denotes
Chair of the
Committee
Full
biographical
details of each
Director are
available at
www.frc.org.uk
Key to
Committees
RSC
P
AR
S
C
C
FRC | Annual Report and Accounts 2022/23 102
Company Secretary
The Board and its committees have access to an appropriately qualified and experienced
Company Secretary who provides independent advice on governance matters. They are
responsible for working with the Chair and the Chief Executive to develop the agendas
for Board and committee meetings and to ensuring that all governance procedures are
complied with. The removal and appointment of the Company Secretary is a matter
reserved for the Board. Francesca Carter stepped down in May 2022, and the Board
appointed James Schirn as Company Secretary.
Transparency
The FRC reports to the Secretary of State for the Department for Business and Trade and
Parliament on the discharge of its statutory functions, and lays its Annual Report and
Accounts before Parliament.
Board appointments, diversity and succession planning
Appointments to the Board are made by the Secretary of State for the Department
for Business and Trade in accordance with the Public Appointments Process and the
Governance Code for public appointments.
The Board Diversity Policy sets out the Board’s support for the Government’s ambitions
with respect to diversity and the Board’s commitment to work with the Secretary of State in
pursuit of the Government’s objectives.
The Board annually reviews the Board skills matrix and succession plans to ensure it has
relevant expertise to support the strategy. The Board has commissioned the recruitment of
three new NEDs through the public appointments process for the coming year, with a focus
on appointing Directors who can bring actuarial, local audit, and investment management
experience to the Board. The recruitment of these additional members reflects our
expanding remit and responsibilities in relation to actuarial regulation and local audit
and will enhance the Board’s diversity and representation of our key stakeholders as we
transition to ARGA.
FRC | Annual Report and Accounts 2022/23 103
Board induction and training
A detailed induction programme tailored for the Chair and all new NEDs took place in the
year 2022/23. The programme included meetings with senior executives from across the
FRC to gain a full understanding of the roles and responsibilities of the senior management
of the FRC, its standard setting and enforcement procedures and policies, and the
operations of the FRC. All Board members received bespoke ongoing training on various
matters including IT security, GDPR and the FOIA. A Board and committee training and
development plan has also been produced to support the Board’s continuous learning in
areas such as cyber security, climate governance, GDPR and diversity and inclusion.
Independence and conflicts
The FRC attaches special importance to avoiding any potential conflict between the work
and values of the FRC and the personal interests of its staff, Directors and its Non-Executive
Advisers. Please see more on our ethics and compliance on page 60.
Key Board matters 2022/23
Board meeting agendas are carefully tailored in advance by the Chair, Chief Executive
and the Executive team to ensure an appropriate balance between strategic and
operational matters. The Board agenda also includes a report from the Chief Executive
on key operational matters, the Transformation Programme and, on a quarterly basis,
management information packs provide key information on the delivery of the strategy
and finances.
The Chairs of the Governance and Regulatory Committees update the Board on the
proceedings of their meetings, including key discussion points and matters for approval.
Please see the reports on the individual committees for more detail on their areas of focus
on pages 108-119.
The NEDs assess, constructively challenge, and decide on the Executive’s proposals and
matters for decision to ensure they are aligned with the FRC’s strategy and purpose.
The focus of the Board’s business throughout the year can be assessed through the lens of
seven broad themes.
FRC | Annual Report and Accounts 2022/23 104
Theme Key areas of focus for the Board in 2022/23
Transformation • Supported the Executive in its active engagement with
Government on the development of the Audit Reform Bill.
• Provided non-executive oversight of the Transformation
Programme and funding plans for ARGA.
• Considered matters relating to the establishment of a second
office location in Birmingham.
• Scrutinised and approved the publication of the FRC’s Position
Paper, setting out how we will support the Government’s
reform as it transitions into ARGA.
Regulatory
Standards and
Codes
• Received regular updates on the Regulatory Standards division
and Regulatory Standards and Codes Committee activities.
• Approved regulatory standards and Codes, following scrutiny
by the committee, for publication.
• Considered the Government’s future plans for setting
sustainability standards in the UK and the FRC’s role in this area.
Supervision • Received regular updates on the FRC’s Supervision division
and Supervision Committee activities.
• Approved the publication of the Tier 1 and the inaugural
Tier 2 and 3 audit quality and supervisory reports to support
improvements in audit quality.
• Provided input and challenge to the Executive on the
development of the FRC’s professional oversight regime of the
Professional Bodies to enhance oversight and scrutiny.
• Approved the publication of the Independent Supervisor
report of the Auditors General to the Secretary of State and the
Professional Oversight Annual Report to the Secretary of State.
• Agreed the creation of the PIE Auditor Register enabling the
FRC to act decisively when it identifies systemic issues in an
audit firm.
• Considered and monitored the implementation of the FRC’s
shadow system leader role for local audit.
Enforcement and
Conduct
• Received regular updates on the FRC’s Enforcement division
and Conduct Committee activities, and scrutinised progress
against KPIs.
• Received updates from the Executive Director of Enforcement
on cases under investigation.
• Approved the publication of a consultation in relation to
amendments to the AEP.
FRC | Annual Report and Accounts 2022/23 105
Theme Key areas of focus for the Board in 2022/23
Engagement with
stakeholders and
staff
• Approved the 2023-26 3-Year Plan and Budget, following
consultation with stakeholders.
• Received regular updates from the Stakeholder Engagement
and Corporate Affairs team on how the FRC engages with
its stakeholders.
• Analysed the positive results of the stakeholder perceptions
and staff feedback surveys.
• Received regular updates from the People Committee and
the NED responsible for workforce engagement to support
staff wellbeing.
Maintaining good
governance
• Approved updates to the Board and committees Terms of
Reference to optimise and clarify roles and responsibilities.
• Approved the Annual Modern Slavery Statement in
accordance with the FRC’s commitment to meet section 54 of
the Modern Slavery Act 2015.
• Received oversight reports on the UKEB and monitored its
operations as part of the FRC’s oversight role.
• Undertook the Annual Board Effectiveness Review and agreed
an action plan to support the Board’s continuous improvement.
• Reviewed Board succession plans and in conjunction with
DBT, began recruitment for all new NEDs and for a new Chief
Executive following Sir Jonathan Thompson's resignation.
Finance, risk and
operations
• Received regular updates from the Audit & Risk Committee
on the internal and external audit plan, internal controls and
financial management.
• Received regular operational updates from the Chief
Executive, as well as monitored the financial health of the
organisation through quarterly financial and KPI reports.
• Provided input and challenge to the development of the risk
management framework and updates to the principal risks.
• Approved the Annual Report and Accounts, and scrutinised
the disclosures contained therein.
FRC | Annual Report and Accounts 2022/23 106
Board effectiveness review
In accordance with the UK Corporate Governance Code, a Board
effectiveness review was conducted to assess the effectiveness of the
FRC governance structure, the Board and its committees, as well as
individual Board member performance.
With a new Chair, Board and governance structure, this exercise was also
an excellent opportunity to ensure the 2021 governance reforms, stemming
from the Kingman report, are embedded and working optimally in support
of the FRC’s effectiveness prior to the transition to ARGA.
This year’s review was internally facilitated by the Chair and supported
by the Company Secretary via a questionnaire and individual discussions
with each Director. This was supplemented with Board and committee
reflection. An externally facilitated evaluation will take place in 2024.
The Board received a report detailing the feedback received and
approved an action plan to support improvements to its effectiveness.
Overall, the results of the evaluation confirm that:
• The Board, its committees and overarching governance structure is
effective, with strong leadership provided by the Chair.
• The Board and its committees are clear on their roles and
responsibilities and have the skills, experience and leadership to
provide oversight and constructive challenge to the Executive.
• Board and committee members are actively engaged and provide
valuable input and oversight to support the FRC’s obligations as
a regulator.
" The Board
effectiveness
review
ensured that
reforms are
embedded
and working
optimally"
FRC | Annual Report and Accounts 2022/23 107
Themes arising from the agreed action plan that will be taken forward in 2023 relate to
enhancing the Board’s operations through improvements to:
• The Board training and development framework to strengthen Director knowledge.
• Non-executive succession plans to ensure a regular refreshing of skills and experience.
• Board and committee reporting templates to aid decision-making.
• Board horizon scanning to reinforce the identification of emerging risks and opportunities.
• The Executive performance management toolkit to strengthen non-executive oversight.
• The risk reporting framework to augment the FRC’s risk management processes.
Committee effectiveness
Each committee also considered the feedback from the effectiveness review exercise and
developed actions as appropriate.
FRC | Annual Report and Accounts 2022/23 108
21. Audit & Risk Committee report
I am pleased to present the Audit & Risk Committee report for the year ended 31
March 2023, which provides an overview of the work of the Committee and the key
matters it addressed over the year. The Committee continues to support the Board in its
review of the integrity of financial reporting and ensuring that internal control remains
robust and appropriately managed.
Significant matters considered by the Committee during the year include:
• Review of the risk management framework, principal risks and reserves policy.
This is particularly important as the organisation transforms into ARGA.
• Receipt of regular updates on the FRC’s responsibility for overseeing UKEB
compliance with due process.
• Oversight of the activities of the internal audit function and external auditors
including an enhanced evaluation of their effectiveness, based on the Committee’s
own interaction with the internal and external auditors as well as a questionnaire
with key internal stakeholders. Both were deemed effective.
• Its own effectiveness through a questionnaire and in-meeting discussion as part
of the Board and Committee Effectiveness Review. The Committee was judged to
be effective, with an action plan developed to strengthen its processes.
The Committee also receives regular and relevant updates from the Finance team
to ensure that the FRC has complied with its obligations as set out in Managing
Public Money.
The forward agenda for 2023 includes several important new priorities, including
strengthening our information management framework, enhancements to the
risk management framework to support a holistic risk environment, and ongoing
consideration of the FRC’s reserves policy in anticipation of the transition to ARGA.
Clare Thompson
Chair of the Audit & Risk Committee
FRC | Annual Report and Accounts 2022/23 109
Role of the committee
The Audit & Risk Committee supports and advises the Accounting Officer (the Chief
Executive) and the Board by providing oversight of our financial reporting process and
use of public funds, corporate governance, the external and internal audit process, the
system of internal controls including business continuity and information technology,
the identification and management of significant risks, and compliance with laws and
regulations. The Audit & Risk Committee’s Terms of Reference can be viewed on
our website.
The committee held five meetings in the 2022/23 financial year. Members of the committee
also attended training sessions for NEDs run by DBT. In addition, the committee met
(without the presence of management) with the lead external and internal auditors from
the NAO and GIAA respectively.
The committee is composed of individuals with extensive, recent and relevant audit, risk
and financial experience, both in the private and public sectors, and listed environments.
The Chair, Clare Thompson, is an ICAEW Chartered Accountant and former Audit Partner,
with extensive non-executive experience including as an Audit Committee Chair.
Michael Hearty, Senior Adviser, is also appointed to the committee and brings extensive
public sector finance background including experience of organisations undergoing
transformation. The biographies of the committee members can be found on our website.
With these appointments, the Board is satisfied that the combined knowledge and
financial experience of the committee members ensured that it could fulfil its
responsibilities effectively.
Membership and attendance
Members Attendance
Clare Thompson FCA (Chair) 5/5
Angela Cha 5/5
Hannah Nixon 4/5
Ruwan Weerasekera 3/5
Senior Advisers
Michael Hearty (FCPFA) 4/5
Other regular attendees at committee meetings
FRC Chair, Accounting Officer, Finance Director, Executive Director of Corporate Services
and General Counsel, Head of Risk, NAO, GIAA.
FRC | Annual Report and Accounts 2022/23 110
External auditor independence
The NAO was appointed as external auditor in 2019 with Greg Wilson as Senior Statutory
Auditor. Greg is not part of the NAO’s Central Quality team, nor responsible for PIE audits
inspected by the FRC. The Board reviews how the relationship and any potential conflicts
of interest between the NAO and FRC are mitigated each year prior to appointing the FRC’s
external auditors. To protect the objectivity and independence of the external auditor, it is
the FRC’s policy that they are not contracted to carry out any non-audit services and no
such services were provided during the financial year. The Audit Partner will rotate in 2024,
following the signing of the accounts.
Financial reporting
The committee reviewed and recommended to the Board the Annual Report and Accounts
for the financial year ended 31 March 2023, having confirmed that it satisfied all applicable
legal and regulatory obligations. The committee also considered the letter of support and
representation issued to the auditors and received the auditors ISA 260 report setting out
any matters arising from the audit. The committee concluded that the financial statements
should continue to be prepared on the going concern basis of accounting, given DBT's
letter of comfort.
Fair, balanced and understandable
In assessing whether the Annual Report and Accounts are fair, balanced and
understandable, on behalf of the Board, the Audit & Risk Committee gave regard to:
• The information contained within the Strategic Report and ensuring it represents a fair
reflection of performance during the year under review.
• Key judgement areas, accounting and reserves policies.
• The KPIs agreed by management, ensuring they reflect those used to manage, monitor
and assess the organisational health of the FRC with a strong linkage to the strategy.
• The key messages in the Annual Report and ensuring they are clear, consistent and
easily understood.
FRC | Annual Report and Accounts 2022/23 111
Internal audit opinion 2022/23
A key source of independent assurance for the FRC is the internal audit function provided
by the GIAA, which complies with the Public Sector Internal Audit Standards. The annual
internal audit programme is closely linked to its key risks. Arrangements are in place to
ensure that the Accounting Officer is made aware of any significant issues which indicate
that key risks are not being effectively managed.
The GIAA provided an opinion on governance, risk management and control for 2022/23,
which was assessed as 'moderate'. While this is unchanged from last year, the opinion
reflects that although there are no fundamental weaknesses in the prevailing internal
control environment in the areas examined, the findings and recommendations represent
an opportunity to improve controls and implement good practice. We are receptive to this,
reflected in our commitment to continuous improvement. Based on the assessment and
considering insights from other regulators, it is the GIAA's opinion that the FRC compares
favourably in its approach to developing strengths in the first and second line.
FRC | Annual Report and Accounts 2022/23 112
22. Conduct Committee report
I am pleased to present the Conduct Committee report for the year ended 31 March
2023, which provides an overview of the work of the committee and the key matters it
addressed over the year.
Since I took over as Chair of the committee in April 2022, we have seen the conclusion
of the Independent Disciplinary Tribunal into KPMG's misconduct in relation to audits
of Regenersis and Carillion
3
, the timely settlement or closure of a significant number
of new and historical investigations, and the opening of ten new Scheme or AEP
investigations in the public interest.
The Conduct Committee’s work involves careful consideration. It must balance the
impact of its decisions on firms and individuals who work in the highly technical, and
often challenging, professions of accounting, auditing and actuarial work against the
FRC’s purpose to protect the public interest, uphold the standards that the markets
expect and rely upon, and hold to account the few who fall below those standards.
David Willis
Chair of the Conduct Committee
Role of the committee
The Conduct Committee is responsible for oversight of the FRC’s enquiries, investigations
and enforcement function, ensuring that appropriate cases are investigated and conducted
fairly, in the public interest, in a timely and cost-effective manner and in accordance with due
process and the Regulators’ Code. The Conduct Committee also looks at some wider legal
matters at the FRC, such as the FRC’s handling of complaints and the approval of the AER.
3 This investigation concerned misconduct in relation to the FRC inspections (known as AQRs) of the audit of the financial
statements of Regenersis plc for the period ended 30 June 2014; and the audit of the financial statements of Carillion plc
for the period ended 31 December 2016. There is a separate ongoing investigation into KPMG’s audit of Carillion for the
years ended 31 December 2013, 2014, 2015 and 2016, and the six months ended 30 June 2017, and the preparation and
reporting of other financial information during the period 2014-2017.
FRC | Annual Report and Accounts 2022/23 113
Membership and attendance
Members Attendance
David Willis (Chair) 11/11
Angela Cha 11/11
Sir Ashley Fox 10/11
Senior Advisers
Richard Murray 10/11
Anne Whitaker 9/11
Sean Collins 10/11
Key areas of focus
The committee provided non-executive oversight and challenge to the Executive on
conduct and enforcement matters including:
• Enforcement case review: information presented by the Case Examiner, General
Counsel and Executive Counsel to support its decision-making role, ensuring thorough
discussion and scrutiny of that information.
• Risk management: emerging issues, risks or delays relating to open investigations.
• KPIs and milestones: how the profession of investigations is measured and monitored.
• Regulation and procedures: proposed amendments to the AEP, Schemes and
associated guidance, and the establishment of the PIE Auditor Registration Regulations.
• Publication of enforcement action: the timing and content of enforcement-related
publications.
• Succession planning: the composition and recruitment of the Tribunal and
Enforcement Committee panels.
• Transformation: the implications of the audit reform proposals on enforcement activity.
FRC | Annual Report and Accounts 2022/23 114
23. People Committee report
Role of the committee
The committee provides the FRC Executive with challenge, constructive dialogues and
strategic direction on issues relating to the appointment and recruitment, remuneration,
talent management and welfare of FRC staff and non-executive members, and takes high-
level decisions on such issues as necessary. The Chair of the People Committee is also the
NED with responsibility for workforce engagement to improve visibility of people matters
at Board and committee level.
I am pleased to present the People Committee report for the year ended 31 March
2023, which provides an overview of the work of the Committee and the key matters it
addressed over the year.
Our transformation to a stronger, more agile and empowered regulator is well underway,
and key to this journey is the effective recruitment, development, performance
management and retention of our staff in accordance with our Values and Behaviours.
The Committee’s work over the year has focused on the design and implementation of
pay measures and succession planning, while monitoring the feedback from staff on
delivery of the strategy through the People Forum and staff survey. Our work plan has
approached this through the lens of D&I, while continuing to provide non-executive
oversight on these matters, alongside registers of interest reviews and other disclosures.
We look forward to working with management on the employee value proposition and
planning for new office environments to support the FRC’s transition to ARGA.
Ruwan Weerasekera
Chair of the People Committee
FRC | Annual Report and Accounts 2022/23 115
Membership and attendance
Members Attendance
Ruwan Weerasekera (Chair) 4/4
Sir Jan du Plessis 3/4
Clare Thompson 4/4
David Willis 4/4
Key areas of focus
The committee provided non-executive oversight and challenge to the Executive on people
matters including:
• Staff wellbeing: our hybrid working arrangements and staff survey results to support
staff wellbeing.
• Diversity and inclusion: our diversity and inclusion initiatives and our diversity policy to
foster an inclusive organisation. For example, we have several staff-led diversity groups
to help support and develop employee knowledge of equality and inclusion matters.
• Succession plans and staff pay award: the Board skills matrix, identifying areas of
experience that would complement and add value to the Board. Recommendations to
Government to support and retain the talent pipeline.
• Other key matters: progress against KPIs, receiving regular updates from the Chief People
Officer on HR matters, commissioning the Board and Committee Effectiveness Review,
conflicts of interest, gifts and hospitality, and Board and Executive Committee expenses.
FRC | Annual Report and Accounts 2022/23 116
24. Regulatory Standards and Codes
Committee report
Role of the committee
The committee is responsible for approving and overseeing high-quality, effective and
proportionate standards, guidance, Statements of Recommended Practice (SORPs), Practice
Notes, and Codes for corporate governance, stewardship, audit and assurance, actuarial,
and corporate reporting work on behalf of the Board. A full summary of the committee’s
business can be found on our website.
Membership and attendance
Members Attendance
Hannah Nixon (Chair) 7/7
John Coomber 7/7
Sir Ashley Fox 6/7
Clare Thompson 4/7
I am pleased to present the Regulatory Standards and Codes Committee report for the
year ended 31 March 2023, which provides an overview of the work of the Committee
and the key matters it addressed over the year.
The Committee’s work has focused on the review of new and revised standards, Codes
and guidance the FRC either monitors and inspects against, or issues to drive good
practice in the provision and assurance of high-quality reporting. Key highlights include
the publication of AS TM1 to support the development of the Government’s pension
dashboard, a Competition policy paper setting out how the FRC proposes to deliver and
promote effective competition in the market for statutory audit, and the periodic review
of FRS 102 and the Professional Judgement Framework.
We look forward to hearing stakeholder feedback on the Corporate Governance Code
consultation and continuing to provide non-executive oversight of standards, Codes and
guidance on behalf of the Board.
Hannah Nixon
Chair of the Regulatory Standards and Codes Committee
FRC | Annual Report and Accounts 2022/23 117
Membership and attendance
Senior Advisers
Paul Cox 7/7
Richard Lawrence 6/7
Rosemary Beaver (retired 31 December 2022) 5/5
Howard Walpole (appointed 1 January 2023) 2/2
Key areas of focus
The committee provided non-executive oversight and challenge to the Executive on
regulatory standards, Codes and guidance including:
• Actuarial policy work: the scope of compliance of Technical Actuarial Standards 100
and 400. Changes to AS TM1 – actuarial assumptions and methods to be used in the
calculation of Statutory Money Purchase Illustrations.
• Financial reporting: support for clear and concise, fair, balanced and understandable
reporting. Considerations of amendments to FRED 81. Amendments to FRS 100, 101 and
102, application of Financial Reporting Requirements and ISA (UK) 600 – ‘audit of group
financial statements’.
• Digital reporting: actions to improve the usability and design of the reports and
XBRL tagging.
• Professional Judgement Framework: effective application of the framework in an audit.
• Transformation: consideration of the development of 'Audit Committees and the External
Audit: Minimum Standard' for FTSE 350 Audit Committees in relation to the appointment
and oversight of the audit and our approach to competition in the audit market.
• Key publications: revisions to the guidance for RSBs on the ‘Recognition of Key Audit
Partners for local audit’, in response to a recommendation from the Redmond Review of
local audit regarding the issue of capacity in this market.
• Corporate governance and stewardship: progress on the Stewardship Code signatory
assessment framework and proposed updates to the UK Corporate Governance Code.
FRC | Annual Report and Accounts 2022/23 118
25. Supervision Committee report
Role of the committee
The Supervision Committee was established in 2021. It receives regular updates from the
six teams within the Supervision division on its approach, outputs and outcomes, and
considers emerging issues and risks in relation to the delivery of the FRC’s supervisory
objectives. It has delegated authority from the Board to exercise its powers in relation to
companies’ compliance with UK corporate reporting laws. It also oversees the discharge
of the FRC’s responsibilities, designated by the Secretary of State, to provide independent
oversight of the professional and qualifying bodies, and the Comptroller and Auditor
General, and to report on the discharge of these responsibilities to Parliament each year.
I am pleased to present the Supervision Committee report for the year ended 31 March
2023, which provides an overview of the work of the Committee and the key matters it
addressed over the year.
Our work has focused on research and innovation being undertaken by the division
such as the ‘What Makes a Good…’ publication series, increased engagement with
smaller audit firms, early plans to refresh the FRC’s approach to its oversight and
regulation of the accountancy and actuarial professional and qualifying bodies, and
joint work with, and benchmarking against, other UK and international peer regulators.
This work all aims to support the delivery of consistently high-quality audit and
corporate reporting across the market and expands the toolkit at the FRC’s disposal as
a robust, improvement regulator.
We look forward to supporting the Supervision division as it settles into its new roles as
PIE Auditor Registrar and shadow system leader for local audit, and in ensuring that the
improvements to audit quality described in our Tier 1 Audit Quality Inspection Report
2021/22 are embedded and broadened.
John Coomber
Chair of the Supervision Committee
FRC | Annual Report and Accounts 2022/23 119
Membership and attendance
Members Attendance*
John Coomber (Chair) 6/6
Ruwan Weerasekera 4/6
Angela Cha 4/6
Hannah Nixon 3/6
Senior Advisers
John Hitchins 5/6
Anne Whitaker 6/6
Andrew Vials 5/6
*In addition to the four scheduled meetings, two further meetings were called during the
year to deal with specific business.
Key areas of focus
The committee provided non-executive oversight and challenge to the Executive on
Supervision matters including:
• Local audit: our role as shadow system leader for local audit, and the risks and
challenges associated with this new role.
• Professional oversight: initial plans to broaden the scope of our oversight of the RSBs
to achieve a more holistic assessment of their operations, as well as consideration of
the security and integrity of UK accounting examinations and qualifications, and the
establishment of the PIE Auditor Register.
• Supervisory activities: the criteria used to select companies for AQR or CRR reviews,
strategies to improve the resilience and audit quality of smaller audit firms operating
in the PIE market, and work with the FCA to review companies’ TCFD and other ESG-
related disclosures.
• Key publications: the Annual CRR, the Tier 1 and inaugural Tier 2 and 3 audit
quality and supervisory reports, including the analysis of its conclusions to support
improvements in audit quality. Statutory and mutually agreed reports to Parliament or
other relevant bodies.
• Other: emerging risks in the audit market, developments in the operational separation
of audit practices, and progress of projects against KPIs.
FRC | Annual Report and Accounts 2022/23 120
26. Remuneration framework
The Chief Executive is the only Executive member of the Board (CA06 Executive Director).
The performance of the Chief Executive and other Executive Committee members is
assessed against both collective objectives set in line with the FRC business plan, and
individual objectives. An overview of the remuneration framework that applied to all staff
during 2022/23 is set out below. The main components of the Chief Executive and other
Executive Committee members’ remuneration are consistent with this framework unless
indicated otherwise.
Element and purpose Operation Opportunity/output
Base salary
To provide core
remuneration for the
role, recognising the
responsibility for setting
and delivering the annual
FRC Plan and Budget.
Salaries are normally reviewed
annually by the People Committee,
which considers the Chief Executive
and other Executive Committee
members’ responsibilities,
performance and experience
alongside market trends and
relevant comparator organisations,
where available.
Any annual increase
awarded reflects
movement in market
rates and increasing
competency within role.
Salaries for new Chief Executive and
other Executive Committee member
appointments are subject to HM
Treasury approval in line with Senior
Civil Service Pay Guidance.
The Chief Executive and
Executive Committee
members are required
to achieve higher ratings
for performance than
other members of staff
in order to qualify for a
potential salary increase.
Individual adjustments
in excess of general
market movements may
be made in appropriate
circumstances (for
example, where the
role scope has changed
or as a reflection of a
significant development
in the role).
FRC | Annual Report and Accounts 2022/23 121
Element and purpose Operation Opportunity/output
Benefits
To provide a
competitive and cost-
effective benefits
package in line with
public sector norms.
All staff who were offered
employment prior to 1 June 2018
are eligible to receive benefits,
which may include:
• Dental insurance
• Private health insurance
• Income protection insurance
• Life assurance
In aligning the FRC’s remuneration
policy more closely with the public
sector, new joiners who started
from 1 June 2018 are no longer
eligible for dental or private
health insurance.
Pension benefits
To provide competitive
retirement benefits
in line with relevant
market comparators.
All staff are eligible to participate
in the group personal pension
scheme, which is a defined
contribution scheme.
Staff offered employment prior
to 1 June 2018 were able to elect
to take pay in lieu of pension
contributions less an amount
equivalent to Employer’s National
Insurance contributions, but this has
been discontinued for staff offered
employment after 1 June 2018.
A maximum of 10% of
base salary.
Non-consolidated pay The FRC provides a modest cash
award to all eligible employees
with qualifying service and
personal performance reflecting
the overall performance of the FRC
during the year.
An in-year award of
£1,100 was made in
respect of the FRC’s
performance to all
qualifying employees.
FRC | Annual Report and Accounts 2022/23 122
Pay multiples (subject to audit)
Reporting bodies are required to disclose the relationship between the remuneration
of the highest paid Director in their organisation and the median remuneration of the
organisation’s workforce.
The banded remuneration of the highest paid Director, the Chief Executive Officer, in office
as of 31 March 2023 was £330,000 – 335,000 (2021/22: £330,000 – 335,000). This was
3.67 times (2021/22: 3.78) the median remuneration of the workforce, which was £91,139
(2021/22: £88,289).
Total remuneration includes salary and benefits in kind. It does not include severance
payments, or any employer’s pension allowance or payments in lieu of pension payments.
In 2022/23, no employee received remuneration in excess of the annual equivalent
remuneration of the highest paid Director.
Directors' remuneration (subject to audit)
2022/23
fees/salary
2022/23
GHI
(1)
2022/23
Pension
(2)
2022/23
Total £
2021/22
Total £
Non-Executive Directors
Sir Jan du Plessis 125,000 - - 125,000 20,089
Angela Cha 17,500 - - 17,500 2,917
John Coomber 27,500 - - 27,500 30,652
Sir Ashley Fox 17,500 - - 17,500 2,917
Hannah Nixon 27,500 - - 27,500 19,534
Clare Thompson 27,500 - - 27,500 2,917
Ruwan Weerasekera 22,500 - - 22,500 16,377
David Willis 30,000 - - 30,000 2,917
Sub-total 295,000 - - 295,000 228,576
Executive Directors
Sir Jonathan Thompson
(3)
Sub-total 305,250 4,229 30,525 340,004 375,833
Total
(4)
FRC | Annual Report and Accounts 2022/23 123
Notes:
When Directors have served for part of a year, the amounts shown are for the relevant
proportion of the year.
(1) This is Life Assurance and Group Income Protection insurance.
(2) This is a payment to a defined contribution scheme.
(3) Executive Directors are entitled to receive some other benefits in accordance with the
remuneration framework; the benefits vary depending on when their employment with
the FRC started. The figures shown are the cash equivalent of their full pay and benefits.
(4) Executive Directors’ remuneration in 2022/23 amounted to 1.6% (2021:22: 1.9%) of total
company remuneration.
(5) Sir Jonathan Thompson is the statutory Director and therefore included in the
remuneration report.
FRC | Annual Report and Accounts 2022/23 124
27. Directors' report
The Directors of the FRC (Registered number: 02486368) present their report for the year
ended 31 March 2023. This report should be read in conjunction with both the Strategic
Report, pages 7-85, which includes Ethics and compliance (p60) and the Governance
Report, pages 86-129, which includes the Corporate Governance Statement.
Topic/
reporting responsibility Relevant section Page
Business model Our business model 15
Values Our business model 15
Strategy Strategic priorities for 2023/24 37
Likely future developments Strategic priorities for 2023/24 37
Principal activities Chief Executive’s report 17
Research and development
activities
Chief Executive’s report 17
Analysis of performance and
current position
Key performance indicators
Financial Statements
41
Post balance sheet events Notes to the financial statements 147
Factors affecting future
development and long-term
viability
Risk management 74
Principal risk and risk
management policies
Risk management 74
Financial risks Financial Review
Notes to the financial statements
69
147
Reviews of internal controls Audit & Risk Committee Report 108
Anti-bribery policy Ethics and compliance 61
Whistleblowing Ethics and compliance 61
FRC | Annual Report and Accounts 2022/23 125
Topic/
reporting responsibility Relevant section Page
Procurement policy Ethics and Compliance 62
Payment practices Ethics and Compliance 62
Modern Slavery Statement Ethics and Compliance 62
Section 172 Statement Section 172 and stakeholder engagement 52
Stakeholder interests Section 172 and stakeholder engagement 52
Gender pay gap reporting Our people 46
Pay ratios Remuneration framework 120
Corporate governance
statement
Governance and transparency 89
Names of Directors
holding office
Governance and transparency 97
Statement on employment of
disabled persons
Our people 46
Streamlined Energy and
Carbon Reporting
Environmental impact 57
Data security (SASB) Ethics and compliance 60
Workforce diversity and
engagement (SASB)
Our people 46
Professional integrity (SASB) Ethics and compliance 61
Directors' responsibilities statement
FRC | Annual Report and Accounts 2022/23 126
Board of Directors
We have included information on the names of the individuals who, at any time during the
financial year, were Directors of the FRC on pages 97-101, as well as their attendance.
Appointment of Directors
Directors are appointed for fixed terms, which may be renewed, rather than being
submitted for re-election at regular intervals. There were no changes of the Company
Directors during the year.
FRC | Annual Report and Accounts 2022/23 127
Retirement, vacation and removal of Directors
In accordance with the Articles of Association (5.1) the Secretary of State, or his or her duly
authorised representative, may at any time remove any person so appointed. A Director of the
Company shall retire from office upon the expiry of the period specified in the most recent
notice of his or her appointment or reappointment received by the Company, or if no period is
specified therein, upon the third anniversary of such appointment or reappointment.
The office of Director shall be vacated if the Director:
• Is removed from office pursuant to the provisions of Articles 5.1 above.
• Resigns his or her office by notice in writing received at the registered office of the company.
• Ceases to be a member of the Company.
• Ceases to be a Director by virtue of any provision of the Companies Act or otherwise
becomes prohibited by law from being a Director.
• In the case of the Chief Executive, ceases to hold that position.
Directors and Directors' insurance and indemnities
Under the terms of the FRC’s Articles of Association, all Directors are members of the
FRC, and each has undertaken to guarantee the liability of the FRC up to an amount not
exceeding £1. There are no other members, and no dividend is payable. The FRC purchased
Articles of Association
The Company’s Articles may be amended by a special resolution of the Company members.
There were no amendments to the Articles during the year.
Related party transactions
Related party transactions are disclosed in Note 16 to the Accounts.
Political donation disclosures
FRC | Annual Report and Accounts 2022/23 128
Key contracts
The FRC has a number of key contracts. However, the FRC performs several checks on the
providers of those contracts including financial health checks. As part of the FRC’s Business
Continuity Planning, scenario testing is undertaken in respect of the failure of one of the
firms providing the key contracts.
Company's trading activities
The FRC is not a trading company. There have been no changes in corporate structure.
Financial risk management
More detail can be found in the notes to the financial statements on pages 147-161.
Disclosure to the auditor
Auditors
The NAO, on behalf of the Comptroller and Auditor General, has expressed its willingness
to remain in office. The Audit & Risk Committee’s conclusions reached were that the NAO
has continued to perform the external audit in a professional and efficient manner and is
deemed to be reappointed.
Approved by the Board of Directors on 29 June 2023 and signed on its behalf by:
Sir Jonathan Thompson
CEO and Accounting Officer
FRC | Annual Report and Accounts 2022/23 129
FRC | Annual Report and Accounts 2022/23 129
FRC | Annual Report and Accounts 2022/23 130
28. Independent Auditor’s Report to the
Members of the Financial Reporting
Council Limited
Opinion on financial statements
for the year ended 31 March 2023 which comprise the FRC’s:
• Balance Sheet as at 31 March 2023;
• Profit and Loss account, Statement of Changes in Equity, Cash Flow Statement for the
year then ended; and
• the related notes including the principal accounting policies.
The financial reporting framework that has been applied in the preparation of the financial
statements is applicable law and the United Kingdom Accounting Standards (United
Kingdom Generally Accepted Accounting Practice).
Opinion on regularity
Basis for opinions
FRC | Annual Report and Accounts 2022/23 131
Framework of Authorities
Authorising legislation Companies Act 2006
Statutory Audit and Third Country Auditor
Regulations (SATCAR) 2013, 2016 and 2017
Local Audit (Delegation of Functions) and Statutory
Audit (Delegations of Functions) Order 2014
Local Audit and Accountability Act 2014
HM Treasury and
related authorities
Managing Public Money
Conclusions relating to going concern
In auditing the financial statements, I have concluded that the FRC’s use of the going
concern basis of accounting in the preparation of the financial statements is appropriate.
My evaluation of the director’s assessment of the entity’s ability to continue to adopt
the going concern basis of accounting included review of management forecasts and a
signed Letter of Support from the Department for Business and Trade, confirming that the
Department would make appropriate financial resources available to support the FRC with
meeting its financial obligations as they fall due, should that be necessary.
Based on the work I have performed, I have not identified any material uncertainties
relating to events or conditions that, individually or collectively, may cast significant doubt
on the FRC’s ability to continue as a going concern for a period of at least twelve months
from when the financial statements are authorised for issue.
In relation to the entities reporting on how they have applied the UK Corporate
Governance Code, I have nothing material to add or draw attention to in relation to the
directors’ statement in the financial statements about whether the director’s considered it
appropriate to adopt the going concern basis of accounting.
FRC | Annual Report and Accounts 2022/23 132
My responsibilities and the responsibilities of the directors with respect to going concern
are described in the relevant sections of this report.
Overview of my audit approach
Key audit matters
FRC | Annual Report and Accounts 2022/23 133
FRC | Annual Report and Accounts 2022/23 134
FRC | Annual Report and Accounts 2022/23 135
Application of materiality
Materiality
Performance Materiality
I set performance materiality at a level lower than materiality to reduce the probability that,
in aggregate, uncorrected and undetected misstatements exceed the materiality for the
financial statements as a whole. Performance materiality was set at 75% of materiality for
the 2022-23 audit (2021-22: 72.25%). In determining performance materiality, I have also
considered the uncorrected misstatements identified in the previous period.
Other Materiality Considerations
Apart from matters that are material by value (quantitative materiality), there are certain
matters that are material by their very nature and would influence the decisions of users
if not corrected. Such an example is any errors reported in the Related Parties note in the
financial statements. Assessment of such matters needs to have regard to the nature of the
misstatement and the applicable legal and reporting framework, as well as the size of
the misstatement.
FRC | Annual Report and Accounts 2022/23 136
I applied the same concept of materiality to my audit of regularity. In planning and
performing audit work to support my opinion on regularity and in evaluating the impact
of any irregular transactions, I considered both quantitative and qualitative aspects that
would reasonably influence the decisions of users of the financial statements.
Error Reporting Threshold
I agreed with the Audit & Risk Committee that I would report to it all uncorrected
misstatements identified through my audit in excess of £15,300, as well as differences
below this threshold that in my view warranted reporting on qualitative grounds. I also
report to the Audit Committee on disclosure matters that I identified when assessing the
overall presentation of the financial statements.
Total unadjusted audit differences reported to the Audit & Risk Committee have decreased
net expenditure by £58k.
Audit scope
Other Information
The other information comprises the information included in the Annual Report, but does
not include the financial statements and my auditor’s report thereon. The directors are
responsible for the other information.
My opinion on the financial statements does not cover the other information and,
except to the extent otherwise explicitly stated in my report, I do not express any form of
assurance conclusion thereon.
FRC | Annual Report and Accounts 2022/23 137
My responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial statements or my knowledge
obtained in the audit, or otherwise appears to be materially misstated.
If I identify such material inconsistencies or apparent material misstatements, I am required
to determine whether this gives rise to a material misstatement in the financial statements
themselves. If, based on the work I have performed, I conclude that there is a material
misstatement of this other information, I am required to report that fact.
I have nothing to report in this regard.
Opinion on other matters prescribed by the Companies Act 2006
In my opinion the part of the section entitled Remuneration Framework in the Governance
section of the Annual Report to be audited has been properly prepared in accordance with
the Companies Act 2006.
In my opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Directors’ Report for the
financial year for which the financial statements are prepared is consistent with the
financial statements;
• the Strategic Report and the Directors’ Report have been prepared in accordance with
applicable legal requirements; and
• the information given in the Strategic Report and the Directors’ Report for the
• the information about internal control and risk management systems in relation to
financial reporting processes, and about share capital structures, in compliance with
rules 7.2.5 and 7.2.6 in the Disclosure Rules and Transparency Rules sourcebook made by
Financial Conduct Authority (the FCA Rules), is consistent with the financial statements
and has been prepared in accordance with applicable legal requirements; and
• Information about the FRC’s corporate governance code and practices and about its
administrative, management and supervisory bodies and their committees complies
with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.
Matters on which I report by exception
FRC | Annual Report and Accounts 2022/23 138
• the information about internal control and risk management systems in relation to
Corporate governance statement
The Listing Rules require me to review the Directors’ statement in relation to going
concern, longer-term viability and that part of the Corporate Governance Statement
relating to the FRC’s compliance with the provisions of the UK Corporate Governance
Statement specified for my review.
Based on the work undertaken as part of my audit, I have concluded that each of the
following elements of the Corporate Governance Statement is materially consistent with
the financial statements or my knowledge obtained during the audit:
• Directors’ statement with regards the appropriateness of adopting the going concern
basis of accounting and any material uncertainties identified set out on page 126;
• Directors’ explanation as to its assessment of the entity’s prospects, the period this
assessment covers and why the period is appropriate set out on page 126;
• Directors’ statement on fair, balanced and understandable set out on page 126;
• Board’s confirmation that it has carried out a robust assessment of the emerging and
principal risks set out on pages 74-85;
• The section of the annual report that describes the review of effectiveness of risk
management and internal control systems set out on pages 74-85; and
• The section describing the work of the audit committee set out on pages 108-111.
FRC | Annual Report and Accounts 2022/23 139
Responsibilities of the Directors for the financial statements
Auditor’s responsibilities for the audit of the financial statements
My responsibility is to audit and report on the financial statements in accordance with the
applicable law and International Standards on Auditing (UK) (ISAs (UK).
My objectives are to obtain reasonable assurance about whether the financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to
issue a report that includes my opinion. Reasonable assurance is a high level of assurance
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial
statements.
Extent to which the audit was considered capable of detecting non-compliance with
laws and regulations including fraud
I design procedures in line with my responsibilities, outlined above, to detect material
misstatements in respect of non-compliance with laws and regulations, including fraud.
The extent to which my procedures are capable of detecting non-compliance with laws and
regulations, including fraud is detailed below.
FRC | Annual Report and Accounts 2022/23 140
Identifying and assessing potential risks related to non-compliance with laws and
regulations, including fraud
In identifying and assessing risks of material misstatement in respect of non-compliance
with laws and regulations, including fraud, I:
• considered the nature of the sector, control environment and operational performance
including the design of the FRC’s accounting policies, key performance indicators and
performance incentives.
• inquired of management, the FRC’s head of internal audit and those charged with
governance, including obtaining and reviewing supporting documentation relating to
the FRC’s policies and procedures on:
- identifying, evaluating and complying with laws and regulations;
- detecting and responding to the risks of fraud; and
- the internal controls established to mitigate risks related to fraud or non-compliance
with laws and regulations including the FRC’s controls relating to the FRC’s
compliance with the Companies Act 2006 and Managing Public Money;
• inquired of management, FRC’s head of internal audit and those charged with
governance whether:
- they were aware of any instances of non-compliance with laws and regulations; and
- they had knowledge of any actual, suspected, or alleged fraud;
• discussed with the engagement team regarding how and where fraud might occur in the
financial statements and any potential indicators of fraud.
As a result of these procedures, I considered the opportunities and incentives that may
exist within the FRC for fraud and identified the greatest potential for fraud in the following
areas: revenue recognition, posting of unusual journals, complex transactions, and bias in
management estimates. In common with all audits under ISAs (UK), I am also required to
perform specific procedures to respond to the risk of management override.
I obtained an understanding of the FRC’s framework of authority and other legal and
regulatory frameworks in which the FRC operates. I focused on those laws and regulations
that had a direct effect on material amounts and disclosures in the financial statements or
that had a fundamental effect on the operations of the FRC. The key laws and regulations
I considered in this context included Companies Act 2006; SATCAR 2013, 2016 and 2017;
Local Audit (Delegation of Functions) and Statutory Audit (Delegation of Functions) Order
2014; Local Audit and Accountability Act 2014; Managing Public Money; employment law;
pensions legislation and tax legislation.
FRC | Annual Report and Accounts 2022/23 141
Audit response to identified risk
• To respond to the identified risks resulting from the above procedures: I reviewed the
financial statement disclosures and testing to supporting documentation to assess
compliance with provisions of relevant laws and regulations described above as having
direct effect on the financial statements;
• I enquired of management, the Audit & Risk Committee and in-house legal counsel
concerning actual and potential litigation and claims;
• I reviewed minutes of meetings of those charged with governance and the Board and
internal audit reports;
• in addressing the risk of fraud through management override of controls, I tested
the appropriateness of journal entries and other adjustments; assessed whether the
judgements made on estimates are indicative of a potential bias; and evaluated the
business rationale of any significant transactions that are unusual or outside the normal
course of business;
• in addressing the risk of fraud through revenue recognition, substantively testing all
material revenue streams to check revenue has been recognised in line with accounting
policies; reviewing recognition and receivability of trade receivables and confirming all
income received was in line with relevant laws and regulations; and
• considering the applicability of Managing Public Money in all of my transaction testing.
• I communicated relevant identified laws and regulations and potential risks of fraud to
all engagement team members and remained alert to any indications of fraud or non-
compliance with laws and regulations throughout the audit.
A further description of my responsibilities for the audit of the financial statements
is located on the Financial Reporting Council’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of my report.
FRC | Annual Report and Accounts 2022/23 142
Other auditor’s responsibilities
I am required to obtain evidence sufficient to give reasonable assurance that the
expenditure and income recorded in the financial statements have been applied to the
purposes intended by Parliament and the financial transactions recorded in the financial
statements conform to the authorities which govern them.
I communicate with those charged with governance regarding, among other matters,
the planned scope and timing of the audit and significant audit findings, including any
significant deficiencies in internal control I identify during my audit.
For and on behalf of the
FRC | Annual Report and Accounts 2022/23 142
Other auditor’s responsibilities
I am required to obtain evidence sufficient to give reasonable assurance that the
expenditure and income recorded in the financial statements have been applied to the
purposes intended by Parliament and the financial transactions recorded in the financial
statements conform to the authorities which govern them.
I communicate with those charged with governance regarding, among other matters,
the planned scope and timing of the audit and significant audit findings, including any
significant deficiencies in internal control I identify during my audit.
Greg Wilson (Senior Statutory Auditor)
19 July 2023
For and on behalf of the
Comptroller and Auditor General (Statutory Auditor)
National Audit Office,
157-197 Buckingham Palace Road,
Victoria, London
SW1W 9SP
DocuSign Envelope ID: 4F9FECB0-2BB0-45AE-8A3E-ABDC7451647F
FRC | Annual Report and Accounts 2022/23 143
29. Financial statements
Registered number: 02486368
Profit and loss account for the year ended 31 March 2023
Note
2022/23
£’000
2021/22
£’000
Revenue 2 50,985 46,854
Operating expenses 3 (51,143 ) (45,524 )
Operating profit/(loss)
(158 )
Interest receivable 0 0
Profit/(loss) on ordinary activities before taxation
(158 )
Tax on profit/(loss) on ordinary activities 4 0 0
Profit/(loss) for the financial year
(158 )
FRC | Annual Report and Accounts 2022/23 143
FRC | Annual Report and Accounts 2022/23 144
Balance sheet as at 31 March 2023
Note
31 March
2023
£’000
31 March
2022
£’000
Fixed assets
Intangible assets 7 25 60
Tangible assets 8 1,230 1,590
Current assets
Debtors 9 11,304 10,671
Cash at bank and in hand 10 13,329 14,520
Creditors – amounts falling due within one year 11 (9,130 ) (9,691 )
Net current assets 15,503 15,500
Total assets less current liabilities 16,758 17,150
Creditors – amounts falling due after more than one year 12 (347 ) (655 )
Provisions for liabilities 14 (405 ) (331 )
Net assets 16,006 16,164
Capital and reserves
Accounting, auditing and corporate governance:
- General reserve 5,654 5,914
- Corporate reporting review legal cost fund 2,000 2,000
Actuarial standards and regulation:
- General reserve 6,352 6,250
- Actuarial case cost fund 2,000 2,000
Sir Jonathan Thompson
Chief Executive Officer
and Accounting Officer
FRC Chair
The financial statements and notes on pages 143 to 161 were approved
by the Board of Directors on 29th June 2023 and signed on its behalf by:
FRC | Annual Report and Accounts 2022/23 145
Statement of changes in equity for the year ended 31 March 2023
Accounting, auditing
and corporate
governance
Actuarial standards
and regulation
General
reserve
£’000
Corporate
reporting
review
legal cost
fund
£’000
General
reserve
£’000
Actuarial
case cost
fund
£’000
Total
£’000
At 31 March 2021
Profit for the year
At 31 March 2022
Profit/(loss) for the year (260 ) 102 - (158 )
At 31 March 2023 5,654 2,000 6,352 2,000 16,006
FRC | Annual Report and Accounts 2022/23 146
Cash flow statement for year ended 31 March 2023
Note
2022/23
£’000
2021/22
£’000
Cash flows from operating activities
Operating profit/(loss) (158 ) 1,330
Adjustments for:
- Depreciation and amortisation 3 627 603
- Increase in dilapidation provision 14 74 34
- (Increase)/decrease in trade and other debtors 9 (633 ) (6,190 )
- Increase/(decrease) in trade and other creditors 11 & 12 (869 ) 3,467
Net cash (out)/inflow from operations (959 ) (756 )
Corporation tax paid 0 0
Total cash inflow from operating activities (959 ) (756 )
Cash flows from investing activities
Purchase of tangible and intangible assets 7 & 8 (252 ) (303 )
Disposal of tangible and intangible assets 7 & 8 20 0
Total cash inflow from investing activities (232 ) (303 )
Foreign exchange translation adjustment 0 0
Net decrease in cash and cash equivalents (1,191 ) (1,059 )
Cash and cash equivalents at 1 April 2022 10 14,520 15,579
Cash and cash equivalents at 31 March 2023 10 13,329 14,520
FRC | Annual Report and Accounts 2022/23 147
30. Notes to the financial statements
1. Principal accounting policies
The Financial Reporting Council Limited (the FRC) is a company limited by guarantee ,
incorporated in the United Kingdom , and its registered office is 8th Floor, 125 London Wall ,
The following principal accounting policies are those policies which have been applied consistently
in dealing with transactions and balances that are considered material to the FRC Group.
The Directors have performed a going concern review considering income and costs, and
the Board are satisfied that the FRC will continue as a going concern for a period of not
less than 12 months after the approval of these financial statements. Whilst performing
their review, the Board were also cognisant that DBT have also provided a letter of financial
support to the Directors, confirming that they will provide funding such that the Company
can meet its liabilities as they fall due for a period of not less than 12 months from the date
the financial statements are approved.
a) Basis of preparation
On 7 February 2023, the Prime Minister announced a major Machinery of Government change
which redistributed the activities of several existing Government departments, including BEIS,
and created three new departments: the Department for Business and Trade; the Department for
Digital, Science, Innovation and Technology; and the Department for Energy Security and Net
Zero. The Department for Business and Trade has been designated to the Financial Reporting
Council with accounting officer responsibilities formally transferred from 1 April 2023.
The preparation of financial statements requires the use of estimates and assumptions that
affect the application of policies and reported amounts of assets and liabilities, income and
expenses. Although these estimates and associated assumptions are based on historical
experience and management’s best knowledge of current events and actions, the actual
results may ultimately differ from those estimates.
The estimates and underlying assumptions are reviewed on an on-going basis.
Provisions for dilapidations
FRC | Annual Report and Accounts 2022/23 148
In relation to the new lease taken at 1 Victoria Street, where part of the floorspace is being
used for the UKEB office, there is no specific requirement in the lease agreement to make
good at the end of the lease term. We are also not allowed to make any structural change
to the leased floorspace. As a result, we are not making any provision for dilapidations but
are making sure the place is kept clean and tidy during the leased period.
Presentation of financial statements
b) Consolidation
c) Revenue recognition
• Revenue is measured at the fair value of the consideration received or receivable.
FRC | Annual Report and Accounts 2022/23 149
- Revenue receivable from the Consultative Committee of Accountancy Bodies (CCAB)
d) Tangible and intangible assets
Tangible assets
Office equipment 3 years
Fixtures, fittings and furniture Lease term
Leasehold improvements Lease term
Intangible assets
Capitalised software 3 years
FRC | Annual Report and Accounts 2022/23 150
e) Financial instruments
Cash and cash equivalents
Debtors
Trade creditors
f) Case costs and financial sanctions
FRC | Annual Report and Accounts 2022/23 151
Deferred lease incentive
Provision for dilapidations
Taxation
FRC | Annual Report and Accounts 2022/23 152
2. Revenue
2022/23 2021/22
£’000 £’000
Preparers levy 20,548 18,306
Insurance and pension levies 2,651 2,591
Accountancy professional bodies 11,500 9,750
Actuarial profession 230 210
Publications 725 738
Government (note 16) 28 0
Other 523 244
Sub total 36,205 31,839
Accountancy professional bodies 13,496 10,700
Other income 1,377 1,686
Sub total 14,873 12,386
Accountancy professional bodies 6,733 10,100
Less cost awards recovered (7,179) (7,746)
Sub total (446 ) 2,354
Insurance and pension levies 0 1
Sub total 0 1
Various sponsors (note 16) 353 274
Sub total 353 274
Total 50,985 46,854
FRC | Annual Report and Accounts 2022/23 153
3. Operating Expenses
2022/23 2021/22
£’000 £’000
Core staff and related people costs (note 5) 40,956 34,659
IT and facility costs 4,583 3,583
Lease expense 945 840
Depreciation and amortisation costs 627 603
Auditor’s remuneration:
- audit (incl. VAT) 89 85
- non-audit services 0 0
XBRL taxonomy development costs 353 274
Accountancy and actuarial case costs - gross 6,733 10,101
- Less cost awards recovered (7,179 ) (7,746 )
Accountancy and actuarial case costs - net (446) 2,355
Other operating expenses
- Travel and conferences 413 87
- Legal and professional fees 1,407 1,052
- Contribution to European Financial Reporting Advisory Group 0 (21 )
- All other costs 2,216 2,007
Total operating expenses 51,143 45,524
4. Taxation
Corporation Tax at an effective rate of 19 % on interest income of £0 (2021/22: £14 ).
FRC | Annual Report and Accounts 2022/23 154
5. Staff and related people costs (including Directors)
2022/23 2021/22
£’000 £’000
Permanent staff:
Salaries 34,466 28,735
Social security costs 4,284 3,460
Pension costs 3,472 2,864
Total permanent staff costs 42,222 35,059
Other people related costs:
Seconded staff and contractors 506 913
Fees paid to Board, committee and council members 911 849
Other costs 727 678
Total staff and related people costs 44,366 37,499
Staff costs transferred to cases (3,410) (2,840)
Total core staff and related people costs 40,956 34,659
2022/23 2021/22
Average no of permanent staff employed 418 360
Directors’ emoluments
2022/23 2021/22
£’000 £’000
Fees (included in staff costs) 604 571
Other pension costs 31 33
Total Directors emoluments (see page 122) 635 604
Social security costs 76 71
FRC | Annual Report and Accounts 2022/23 155
6. Financial risk management
Credit risk
Interest rate risk
Liquidity risk
FRC | Annual Report and Accounts 2022/23 156
7. Intangible assets
Software
£’000
Cost at 1 April 2022 182
Additions 4
Disposals (25 )
Cost at 31 March 2023 161
Amortisation at 1 April 2022 122
Disposals (8 )
Charge for year 22
Amortisation at 31 March 2023 136
Net book value at 31 March 2023 25
Net book value at 31 March 2022 60
8. Tangible assets
Leasehold
improvements
£’000
Office
equipment
£’000
Fixtures,
fittings and
furniture
£’000
Total
£’000
Cost at 1 April 2022 2,467 815 1,110 4,392
Additions 221 27 248
Disposals 0 (5 ) 0 (5 )
Cost at 31 March 2023 2,467 1,031 1,137 4,635
Depreciation at 1 April 2022 1,777 512 513 2,802
Disposals 0 (2 ) 0 (2 )
Charge for year 230 166 209 605
Depreciation at 31 March
2023
Net book value at 31 March
2023
Net book value at 31 March
2022
FRC | Annual Report and Accounts 2022/23 157
9. Debtors
2022/23 2021/22
£’000 £’000
Trade debtors 3,055 3,253
Prepayments 2,012 1,603
Accrued income 2,250 3,270
Enforcement sanctions 3,980 2,528
Other debtors 7 17
10. Cash and investments held
Cash Total Cash Total
2023 2023 2022 2022
£’000 £’000 £’000 £’000
Actuarial case costs fund 2,000 2,000 2,000 2,000
Corporate reporting review legal costs fund 2,000 2,000 2,000 2,000
General accounts 9,329 9,329 10,520 10,520
Totals at 31 March 2023 13,329 13,329 14,520 14,520
FRC | Annual Report and Accounts 2022/23 158
11. Creditors – amounts falling due within one year
2022/23 2021/22
£’000 £’000
Trade creditors 447 579
Other taxation and social security 1,374 1,215
Accruals 2,292 2,371
Deferred income 633 1,541
Deferred lease incentive 350 351
Enforcement fines and cost awards 3,980 3,438
Corporation tax 0 0
Other payables 54 196
Total 9,130 9,691
12. Creditors – amounts falling due after more than one year
2022/23 2021/22
£’000 £’000
Deferred lease incentive 347 655
13. Significant transactions with other standard setters
With the agreement of HM Treasury, DBT and the FCA, the FRC has, since 2008, taken the respon-
sibility for collecting the UK contribution to the IASB alongside its preparer’s levy. The FRC makes a
small charge for providing this service. The amount of monies raised during the year was £915,000
(2021/22: £884,000), of which £16,000 (2021/22: £51,000) remained to be paid over by the FRC to
the IASB as at 31 March 2023.
14. Provisions for liabilities
2022/23 2021/22
Leasehold improvements and dilapidations £’000 £’000
Balance at 01 April 2022 331 297
Amount charged to/(released from) profit and loss account 74 34
Balance at 31 March 2023 405 331
FRC | Annual Report and Accounts 2022/23 159
15. Commitments
Total commitments for the FRC under operating leases relating to the leasehold property
were as follows:
2022/23 2021/22
Total Total
£’000 £’000
Payments due within one year 937 981
Payments due within two to five years 872 1,829
Payments due after more than five years 0 0
Total commitments for the FRC under operating leases for office equipment were as follows:
2022/23 2021/22
£’000 £’000
Payments due within one year 2 0
Payments due within two to five years 2 0
Payments due after more than five years 0 0
FRC | Annual Report and Accounts 2022/23 160
16. Related party transactions
Transactions with related parties
The FRC is an executive non-departmental public body of DBT (formally known as BEIS). DBT
is therefore regarded as a related party. During this financial year, DBT provided £28,000 of
funding towards the Recognition Arrangements Grant Programme and Companies House
(an Executive Agency of DBT) contributed £137,000 towards the XBRL Taxonomies project.
There were no related party transactions undertaken by key management personnel with
the FRC during the year.
Total key management personnel compensation
2022/23 2021/22
£’000 £’000
Fees and staff costs 1,814 1,570
Other pension costs 102 123
1,916 1,693
Social security costs 196 207
This includes all Board members and Executive Committee members.
17. Subsidiary undertaking
The FRC has one subsidiary undertaking, UK Accounting Standards Endorsement Board
8th Floor 125 London Wall, London, United Kingdom, EC2Y 5AS. It did not trade during the
reporting period.
18. Liability of members
The members of the FRC have undertaken to contribute a sum not exceeding £1 each to
meet the liabilities of the Company if it should be wound up.
FRC | Annual Report and Accounts 2022/23 161
19. Controlling party
The ultimate controlling party of the Financial Reporting Council Limited is the Secretary of
The FRC is a company limited by guarantee, incorporated in the United Kingdom with
registration number 02486368.
The financial statements for the FRC Group were prepared by the FRC and may be obtained
from its registered address 8th floor, 125 London Wall, London, EC2Y 5AS.
Appendix
FRC | Annual Report and Accounts 2022/23 162
Appendix
FRC | Annual Report and Accounts 2022/23 162
FRC | Annual Report and Accounts 2022/23 163
31. Acronyms
Acronym Meaning
ACCA Association of Chartered Certified Accountants
AEP Audit Enforcement Procedure
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FRC | Annual Report and Accounts 2022/23 164
Acronym Meaning
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