FRC draft plan and budget highlights key areas of focus for 2014/2015

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12 Dec, 2013

The Financial Reporting Council (FRC) has today issued its draft plan and budget and levy proposals for 2014/2015. The FRC request comments by 28 February 2014.

The draft plan and budget and levy proposals identify a number of priority areas for the FRC to focus on in 2014/15.  An update on the progress that the FRC are making against their three year plan (2013-2016) is also given. 

Corporate Governance and stewardship.  

The FRC will “continue to promote a longer term approach to Corporate Governance and investor stewardship”.  

In the area of Corporate Governance and stewardship, key areas the FRC will focus on are: 

  • To consult on any further proposals for amending the UK Corporate Governance Code.  The FRC has recently consulted on “how the UK Corporate Governance Code should address risk management and reporting by listed companies so as to implement Lord Sharman’s proposals in relation to going concern” (link to FRC website).  The FRC will seek to update the UK Corporate Governance Code for these areas. 
  • To “undertake an assessment of the quality of board succession planning” where a number of board reviews identify that improvements can be made.  
  • To encourage “improvements in the quality of explanations where Boards choose not to comply with a Code provision”. 
  • To consider the impact of the revised UK Corporate Governance Code.  It is expected that the Financial Reporting Lab will carry out a project on risk management once the new guidance is finalised in 2014 and update its findings from its October 2013 report of audit committee reporting.
  • To focus on better implementation of the Stewardship Code and overall development of a “stewardship culture”.  To achieve this the FRC will “work with markets and investors in the UK and internationally to try to ensure that investors in the capital markets have the information they need to invest for the long-term”. 

Corporate reporting  

In seeking to “meet the needs of investors for trustworthy and relevant information”, the FRC will focus on key areas such as: 

Audit quality and value          

The FRC will “continue to focus on the quality and value of audit and what measures may be needed for audit to meet evolving public expectations”.  A particular focus will be on the quality of bank audits. 

In 2014/15, the FRC focus on key areas such as: 

  • The quality of auditing of banks.  The FRC has indicated that this review will begin in Q2 2014 with a “formal report expected to be published by the end of the year”.  In a separate press release (link to FRC website) the FRC comment that “the pace of improvements in the quality of auditing of banks and building societies has not been sufficient” and during their audit reviews, these audits are “below the average of all audits inspected”.  The need for improvements in the quality of auditing of financial institutions was highlighted as a key concern in the 2013 Audit Quality Inspection Report.  The FRC indicates that “the review will focus on the testing of loan loss provisions and general IT controls”.
  • Continue to monitor and report on the quality of approximately 125 audit engagements under the annual programme.  The FRC will use “new regulatory powers to impose sanctions where poor quality audit work is identified”. 
  • Continue to contribute to the work of the International Auditing and Assurance Standards Board (IAASB), the International Forum of Independent Audit Regulators (IFIAR) and the European Audit Inspection Group (EAIG). 

Oversight, monitoring and enforcement activities 

The FRC will continue to develop their monitoring and enforcement responsibilities. 

Key areas of focus will be: 

  • To implement the recommendations of the Competition Commission regarding additional responsibilities for the Audit Quality Review Team (AQR) of the FRC to “review every audit engagement in the FTSE 350 on average every five years”. 
  • To “prepare to implement the requirements of the new Audit Directive which the EU is expected to agree in early 2014” and “the implementation of local public sector audit inspection regimes”.  The first inspection of public sector audits is expected in 2016.
  • To inspect auditors of public interest entities as a result of “likely” EU requirements. 

The FRC recognise that these extra activities will result in a requirement for increased resource. 

The full ‘Draft plan and budget and levy proposals 2014/15” contains further areas of focus for 2014/15 in addition to the above areas.  The FRC also identify actions it will take to enhance actuarial regulation and standards and explain how these key activities for 2014/15 will be funded. 

Click for (all links to FRC website): 

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