FRC - The Final Curtain Call
The FRC has released its draft budget plan and budget for 2020/21.
The FRC has released its draft budget plan and budget for 2020/21. There are some interesting comments around the actions the FRC intends to take in the audit market including increasing Audit Quality and Corporate Reporting Reviews by 25% and also news for the actuarial market with a post-implementation review of the Technical Actuarial Standards to take place.
The budget plan and budget sets out the FRC's interim strategy whilst it awaits government reform and the setting of long term objectives in 2021. The FRC records its core objectives as:
- To set high standards in corporate governance and stewardship, corporate reporting, audit and actuarial work and assess the effectiveness of the application of those standards, enforcing where in the public interest.
- To promote improvements and innovation in these areas, exploring good practice with a wide range of stakeholders.
- To transfer the organisation into a fit-for-purpose independent regulator.
The FCA specifically notes that an objective is to "...Promote a more resilient audit market..." and as a result of the refining of its purpose, principles and objectives the FRC is to reorganise into 4 divisions:
- Regulatory standards and codes – pulling together areas of the FRC that set and influence standards and codes and promote good practice.
- Supervision – monitoring and assessing compliance with the applicable laws, codes and standards set and ensuring that audit firms prioritise actions to improve audit quality and promote resilience of the audit market.
- Enforcement – holding to account in the public interest those responsible for breaching required standards.
- Corporate services – run the FRC effectively, as a public body in line with Government expectations of an independent regulatory and laws and regulations that apply to it.
The key priorities most relevant to the accounting and actuarial profession are:
- Taking a risk based approach, increase the scope and number of Audit Quality Reviews from 130 in 2019/2020 to between 145 – 165 in 2020/2021 and corporate reporting reviews from 215 in 2019/2020 to between 240 and 260 in 2020/2021.
- Build and deepen supervision of the major audit firms, including governance, structure, audit quality management, culture and resilience.
- Expand oversight of the professional bodies with decision-making about audit registration moving to the FRC.
- Deliver robust, fair and transparent regulatory outcomes.
- Launch a post-implementation review of the Technical Actuarial Standards.
- Update UK GAAP for recent international developments.
The key priorities also include working with the Department for Business, Energy and Industrial Strategy on any consultation documents in response to the Kingman and Brydon reviews and to work with the Competition and Markets Authority assessment of competition in the audit market and deliver change in line with the Kingman recommendations in line with existing powers.
In order to implement the strategy the FRC proposes to increase resources working on Audit Quality and Corporate Reporting Reviews by 25% and increase the number of forensic accountants and lawyers to speed up the investigation and conclusion of enforcement cases, with an increase in staff from 255 to 355.
We await to see whether the steps the FRC proposes are one final hooray ahead of the impending reforms outlined in the three independent reviews of the FRC, or if we can expect to see some real teeth from the FRC in the next 12 months.