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FRC issues Plan and Budget for 2016/2017

  • FRC Image

28 Apr 2016

The Financial Reporting Council (FRC) has published its Plan and Budget for 2016/2017. The plan sets out the activities that the FRC will focus on in the first year of its new 2016/19 three year strategic programme.

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

Audit regulation – Make effective use of its significant new role as UK competent authority under EU audit regulation and directive.

Audit quality – Promote audit quality so that by 2019 at least 90 percent of FTSE 350 audits require no more than limited improvements.

Corporate governance – Identify and promote good practice through its work on corporate culture. Promote effective engagement between boards and investors.

Corporate reporting – Help embed recent changes, influence the development of IFRS and help smaller listed and AIM companies with the quality of reporting.

Actuarial standards – Implement new framework of Technical Actuarial Standards. In 2017, consult publicly on the future of actuarial regulation.

Key projects will include:

  • Corporate governance: to continue to promote corporate governance and corporate cultures which 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.
  • Investor stewardship: to focus on promoting 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 its annual assessment of the quality of engagement.
  • Corporate reporting: The FRC will direct their annual programme of reviews of corporate reports at “companies of economic significance where a material misstatement could have implications not just for the individual company but for confidence in the market as a whole”.  Priority sectors will be:
    • Extractive industries and companies using extractive companies
    • Companies servicing the public sector
    • Media businesses

There will be a “targeted review” of tax disclosures and this will be an area of corporate reporting that the FRC seeks improvements.  The FRC will follow up on its 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.  In continuing to develop its ‘Clear & Concise’ initiative the FRC will assist the Department for Business, Innovation and Skills (BIS) in the UK implementation of the EU 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: The FRC will implement the Audit Regulation and Directive (ARD) “with a clear delineation of responsibility” between the FRC and the professional bodies.  It comments that it will seek to ensure that this new framework “serves the interests of investors in the reliability of financial statements; and that it supports the UK audit profession in delivering statutory audit to the necessary high standards and with close regard to the public interest”.  In 2016/17 the FRC will monitor and report on audit quality of approximately 140 individual engagements and will impose appropriate sanctions where poor quality has been identified.  In particular the FRC will pay particular attention to the quality of first year audits, revenue recognition policies, tax provisioning and the audit of IT controls.  Additionally 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.

The full Plan and Budget and Levies 2016/17 contain 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 2016/17 will be funded.

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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