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FRC draft plan and budget highlights key areas of focus for 2015/2016

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18 Dec 2014

The Financial Reporting Council (FRC) has published its Draft Plan & Budget and Proposed Levies for 2015/16, which represents the final year of its current three year strategic programme.

During 2015/16 the FRC intends to focus on four primary areas:

  • Investor stewardship: supporting better quality engagement between boards and shareholders and ensure that those that have signed up to the Stewardship Code deliver on the commitments they have given.        
  • Corporate reporting: promoting reports that are clear and concise as well as being fair, balanced and understandable. 
  • Audit: supporting the Department for Business Innovation and Skills (BIS) in implementing the amended EU Audit Directive and Regulation, and continue the programme of work to promote audit that is of a consistently high standard and meets investor needs.
  • Conduct activities: enhancing the impact and overall effectiveness of its conduct activities, including the pace and effectiveness of independent disciplinary arrangements.

Key projects will include:

  • Corporate governance: Continuing their work on best pratice in board succession planning, considering further corporate culture and embedding of good corporate behaviour and determining what changes might be made to the UK Corporate Governance Code to align with the Competition and Market Authority’s (CMA’s) Order on audit tendering. The FRC will also assess how audit committees are applying, on a voluntary basis, the CMA’s recommendations on Audit Quality Review transparency.
  • Investor stewardship: Looking at the evidence base for engagement practice, encouraging asset managers and owners to provide better accounts of their engagement policy and practice.
  • Corporate reporting: work with BIS on the implementation of the EU Accounting Directive, including making consequential amendments to standards, and EU Directive on non-financial reporting. They will also report on progress to date and consult on future actions to help smaller listed and AIM companies improve their reporting. The Financial Reporting Lab expects to publish reports on Corporate Reporting in a Digital World and on disclosure of dividend policy and capacity.
  • Audit: Follow up on the thematic review on the quality of auditing of banks and building societies, as well as undertaking thematic studies on quality control monitoring procedures, Engagement Quality Control Review and sampling. Major work will be undertaken to implement the EU Audit Regulation and Audit Directive and to consult on and finalise their review of the ethical framework.
  • Actuarial work: Finalisation of the standards framework, possible reviews to four specific Technical Actuarial Standards (insurance, pensions, funeral plans and transformations) and preparation for Solvency II.

Priority sectors for both the Corporate Reporting Review and Audit Quality Review will be:

  • insurance;
  • food, drink and consumer goods manufacturers and retailers;
  • companies servicing the extractive industries; and
  • business services.

Key areas for these reviews will be revenue recognition, the reporting of complex supplier arrangements, business combinations and the implementation of new accounting standards. The FRC expects to review around 250 corporate reports and 140 individual audits.

In respect of its budget, the FRC proposes an overall expenditure of £33.3m in 2015/16 compared to the £31.2m estimated spend in 2014/15. The most significant increase in expenditure, £1.2m, will be in the cost of audit quality reviews, an increase of 12.5%, which results from the CMA’s recommendations that FTSE 350 audits should be inspected on average every five years.

During 2015/16, the FRC explains that it will be developing its next three-year strategy for 2016/19 and will be consulting stakeholders on its proposed areas of focus and regulatory approach. 

Commenting on the draft plan, budget and levy proposals, Stephen Haddrill, FRC Chief Executive said,

As we complete our current three year strategic programme we will promote Clear & Concise reporting and begin the implementation of the EU Audit Directive. We will at all stages continue to work with stakeholders in the UK and beyond.

In July 2015 it will be three years since the FRC’s reforms of 2012. We will take stock of how effective those reforms have been. We will continue to enhance the effectiveness, efficiency and coherence of our monitoring and disciplinary roles. Our aim overall is to avoid large numbers of new initiatives so we can concentrate on ensuring the recent reforms are effectively established and deliver the outcomes sought. 

The consultation will be open until 16 February 2015.

Click for the consultation issued by the FRC (link to FRC website).

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