FRC draft plan and budget highlights key areas of focus for 2016/2017

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22 Dec, 2015

The Financial Reporting Council (FRC) has published its Draft Plan & Budget and Levy Proposals for 2016/17, which represents the first year of its new 2016/19 three year strategic programme.

During 2016/17 the FRC intends to focus on four key priorities:

  • Audit: establishing and making the most effective use of the FRC’s new role as the UK competent authority for audit regulation
  • Corporate governance: focusing on best practice, including through the FRC’s work on corporate culture and promoting effective engagement between boards and investors.
  • Corporate reporting: focusing on embedding recent changes, influencing the development of IFRSs and helping smaller listed and AIM companies with the quality of reporting.
  • Actuarial standards: completing an update of the framework for actuarial standards by implementing a standard to cover a broader range of actuarial work and refocusing the FRC’s specific Technical Actuarial Standards.

Key projects will include:

  • Corporate governance: to continue to promote corporate governance and corporate cultures that support the long-term success of companies. During 2016/17 the FRC will publish a report of the findings of its market-led initiative launched in 2015 in order to gather practical insight into corporate culture and the role of boards. This report will include observations, identify best practice and develop practical and market-led ‘how to’ resources. There will also be feedback published in 2016/17 on the discussion paper on ‘UK Board Succession Planning’ with the eventual aim of replacing the FRC’s Guidance on Board Effectiveness. The FRC is currently consulting on limited changes to the UK Corporate Governance Code linked to the implementation of the EU Audit Regulation and Directive (ARD).
  • Investor stewardship: to focus on effective investor engagement, including the monitoring of reporting by Stewardship Code signatories and encouraging advisers and intermediaries to help to facilitate engagement. The relevant parts of the EU Shareholders Rights Directive will also be implemented by the FRC. In addition the FRC will publish their annual assessment of the quality of engagement.
  • Corporate reporting: to follow up on the FRC’s project to improve the quality of reporting by smaller listed and UK AIM quoted companies. The FRC will continue to influence the IASB’s agenda and work on its Conceptual Framework and standards on financial instruments, leasing and insurance whilst promoting prudence and stewardship as cornerstones of the IASB’s work. In continuing to develop its ‘Clear & Concise’ initiative the FRC will assist BIS in the UK implementation of the Non-Financial Reporting Directive. The Financial Reporting Lab is also expected to deliver its report on Business Model reporting and develop its project on the Digital Future.
  • Audit and assurance: to implement the ARD with a clear delineation of responsibility between the FRC and the professional bodies. In 2016/17 the FRC will undertake thematic reviews of firms’ quality review processes, the use of data analytics on audits and firms’ root cause analysis of the findings from internal and external monitoring.
  • Actuarial work: to complete work on the new framework of Technical Actuarial Standards and to consult on whether independent oversight of the actuarial profession remains necessary and appropriate.

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

  • the extractive industry;
  • companies servicing extractive companies;
  • companies servicing the public sector; and
  • media businesses.

In their Audit Quality Review the FRC will pay particular attention to the quality of first year audits, revenue recognition policies, tax provisioning and the audit of IT controls. The FRC expects to review around 250 corporate reviews and 140 individual audits.

In respect of its budget, the FRC proposes an overall expenditure of £33.5m in 2016/17 compared to the £33.7m estimated spend in 2015/16. The decrease is largely due to lower than forecast expenditure on accountancy disciplinary case costs.

The consultation will be open until 12 February 2016.  The FRC will be holding an open meeting to discuss its priorities for 2016/17 on 10 February 2016.  Details can be found here.

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

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