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FRC publishes Strategy for 2018/21

  • FRC Image

27 Mar 2018

The Financial Reporting Council (FRC) has published its three year strategy for 2018/21 and its budget and levy proposals for the 2018/19 financial year.

The publication follows a consultation document issued in December 2017 where stakeholders broadly supported the FRC’s strategic priorities.

During 2018/21 the FRC’s strategic priorities include:

  • Promoting corporate governance and investor stewardship with a long-term focus. Key activities include:
    • Closely monitoring reporting on the new UK Corporate Governance Code including the way in which companies have reported meaningfully on how they have applied its Principles. The FRC will also seek to develop a set of corporate governance principles to enhance confidence that large companies are acting appropriately.
    • A review of the Stewardship Code; a consultation on which is expected in late 2018.
    • An assessment, later in the strategy period, of the impact of the FRC initiatives on the effectiveness of the board’s role in promoting the long-term success of companies, and the impact of the changing nature of equity ownership on the role of stewardship.
  • Promoting true and fair reporting. The FRC indicates that it aims to “drive continuous improvement in corporate reporting” and will do so through its monitoring of annual reports and accounts, the use of targeted thematic reviews and through the work of its Financial Reporting Lab.
    • Standards of corporate reporting. The FRC indicates that “although generally good there are areas of reporting where quality is not as high as it could be” and it will use its powers to address deficiencies identified. Particular focus will be on how companies are implementing IFRS 15 Revenue from Contracts with Customers, IFRS 9 Financial Instruments and IFRS 16 Leases.
    • Future developments. The FRC will also respond to developments in wider corporate reporting such as the Strategic Report and will ensure that “corporate reporting in the UK retains its relevance in the face of shifting shareholder and stakeholder expectations, capital structures and other market developments”. The FRC will also increase focus on companies’ reporting under s172 of the Companies Act 2006 and the actions the directors have taken to promote the success including impact on wider society such as climate change. Additionally the FRC will consider “the role, purpose and relevance of the annual report in its current form and how the wider information needs of investors and other stakeholders can be better met”.
  • Promoting high quality audit and assurance. The FRC’s strategic priority is to “promote justifiable confidence in UK audit”.
    • Monitoring audit quality. The FRC will publish its annual report on Developments in Audit in 2019 which will indicate whether its target that, by 2019, at least 90% of FTSE 350 audits require no more than limited improvements, has been achieved. The FRC indicates that over the three year strategy period it will consider increasing this target percentage and broaden its application paying particular attention to financial services audits. Additionally the FRC will publish the results in 2018 of a thematic review of audit firm culture in the UK and will engage with leadership to ensure that they benefit from good practices identified from that review.
    • Monitoring and supervisory approach. The FRC will implement a new approach to the monitoring and supervision of the largest audit firms in 2018/19. The FRC will set out its expectations of each firm in the areas of leadership and governance, values and behaviours, business models and financial soundness, risk management and control and evidence of audit quality.
    • The audit of the future. The FRC will look at the current statutory audit model and determine whether it can be made more effective and improve.
    • Standard setting. The FRC will continue its contribution to the development of international auditing standards and their governance framework. It will also consider how auditing standards can evolve to adapt to the opportunities offered by digital technology.
  • Promoting high quality actuarial work.
  • Effective enforcement.

The FRC also sets out its budget for 2018/19 for expenditure and funding. Overall the funding requirement is expected to increase by 1% in 2018/19. This is principally as a result of an additional funding requirement from the accountancy profession to cover additional work as competent authority for audit and its new role in monitoring local public audit.

The press release and full document are available on the FRC website.

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