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FRC issues Plan and Budget for 2015/2016

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26 Mar 2015

The Financial Reporting Council (FRC) has published its Plan and Budget for 2015/2016. The plan sets out the activities that the FRC will focus on over the next year to pursue the five key priorities identified in 2013 as part of its three year plan for 2013 to 2016.

The FRC has identified the following priority areas for 2015/16 (taken from the Plan and Budget and Levies 2015/16):

Corporate Governance

The FRC will “focus on company culture and how to promote good practice; and on company succession planning”.  Specifically the FRC will:

  • Continue an assessment of the quality of board succession planning and consider how to develop best practice.
  • Review how effective boards establish company culture and practices, embedding good corporate behaviour.
  • Following the 2014 changes to the UK Corporate Governance Code, seek evidence of the companies’ early experience of implementing risk management and viability reporting.
  • Consider, in advance of any formal consultation, possible changes to the Code in 2016 as result of the CMA recommendations in relation to audits of FTSE 350 companies.

Investor stewardship  

The FRC highlights that it is “seeking an improvement in the quantity and quality of engagement; for asset managers to be more accountable to their clients, who should in turn generate the demand for stewardship; and for proxy advisors to be more accountable for the quality of their advice”.

To that end, the FRC will “support better engagement between boards and shareholders and ensure that Stewardship Code signatories deliver on the commitments”.  The FRC notes that there are some “encouraging signs of more engagement” between larger listed companies and their shareholders “but this is not the case across the listed sector or the signatories to the Stewardship Code as a whole”.  Specific areas of focus will be:

  • Developing the evidence base for engagement practice and the benefits of effective engagement.
  • Encouraging asset managers and owners to provide better accounts of their engagement policies and practices.
  • Undertaking scrutiny of adherence to the Stewardship Code.
  • Influencing the development of the new EU Shareholder Rights Directive.   

Corporate Reporting

The FRC highlights that it has built on its ‘cutting clutter agenda’ through promoting clear and concise reporting including publishing the guidance on the Strategic Report and the Corporate Reporting Review Annual Report and a report by the Financial Reporting Lab.  The aim of the FRC in this area will be to “encourage all those involved in the financial reporting process to focus on communication, the placement of information and materiality”.  During 2015/16 the FRC will:

Additionally, the plan and budget indicates that the FRC will continue to undertaking its annual programme of reviews of corporate reports.  The FRC highlight that its priority sectors will be “insurance, food, drink and consumer goods manufacturers and retailers, companies servicing the extractive industries and business services”.  During the reviews the FRC will pay particular attention to “revenue recognition, the reporting of complex supplier arrangements, business combinations and the implementation of new accounting standards”. 

The FRC will also continue its project aimed at improving the quality of reporting of smaller listed and AIM companies.

Audit

The FRC will “support 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”.  Specifically the FRC will:

  • Follow-up the thematic review of the quality of auditing of banks and building societies; and undertake thematic studies on audit quality processes covering quality control monitoring procedures and the Engagement Quality Control Review (EQCR) together with audit sampling.
  • Assess how audit committees are applying, on a voluntary basis, the CMA recommendations on audit quality review (AQR) transparency.
  • Continue to work with BIS to ensure that the EU Audit Regulation and Directive is implemented to ensure an effective, appropriate and proportionate regulatory regime for audit. This will include considering the impact of any changes on the structure of audit regulation and related FRC powers and on the FRC’s ethical and auditing standards.
  • Contribute to the work of the International Auditing and Assurance Standards Board, the International Forum of Independent Audit Regulators and other EU and international groups.
  • Contribute to the development of an updated Audit Firm Governance Code. 

Additionally the FRC will “monitor and report on the quality of around 140 individual engagements” focusing on the same areas as those priority sectors under the ‘corporate reporting’ objective and also the quality of first year audits.

Conduct

The FRC will “consider the overall effectiveness of its work to review the quality of corporate reporting and auditing; and continue to enhance the pace and effectiveness of our independent disciplinary arrangements”.  The FRC has indicated that it intends to “undertake a project to consider the effectiveness of our corporate reporting and audit quality review activities”.

The full Plan and Budget and Levies 2015/16 contains effectiveness indicators that the FRC will use to assess progress against these objectives and additional areas of focus to the ones identified above.  The FRC also identify actions it will take to enhance actuarial regulation and standards and explain how these key activities for 2015/16 will be funded.

The FRC also indicates that during 2015/16 it will be developing its next three year strategy for 2016-2019 and will consult on areas that it should focus on in due course.

The full details of the plan and budget and press release can be obtained from the FRC website.  Our previous story on the draft plan and budget sets out further information on the background behind these areas of focus.

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