In December 2022, the FRC published a policy paper providing an overview of its approach to competition in the audit market.  The policy paper set out the need for a market that consistently delivers high quality and is resilient.  The policy paper covered:

• The FRC’s approach to competition in the audit market; 
• Recent developments with competition in the audit market; and 
• The FRC’s current work on competition in the audit market.

The latest update provides a high-level summary of the recent developments in the audit market and the FRC's work to help realise a well-functioning audit market.

Feedback and comments are wel­comed by 29 Feb­ru­ary 2024.

A press release and the snapshot are avail­able on the FRC website.

The press release states that the main objectives of the draft guidelines are to:

• Ensure that the supervision of listed entities’ sustainability information under the Corporate Sustainability Reporting Directive (CSRD), the European Sustainability Reporting Standards (ESRS) and Article 8 of the Taxonomy Regulation is carried out by national competent authorities in a converged manner; and
• Establish consistency in, and robust approaches to, the supervision of listed entities’ sustainability and financial information to facilitate increased connectivity.

As a next step, ESMA will consider the feedback it receives on the draft guidelines and expects to publish the final guidelines by Q3 2024.

Please click to access the draft guidelines via the press release on the ESMA website.

IOSCO believes that the recommendations contained within the report will also be useful to standard setters, including the International Accounting Standards Board (IASB), as they pursue initiatives to enhance business combination disclosures and related matters of goodwill impairment testing.

IOSCO reminds issuers of the importance that their accounting and disclosures result in a fair and transparent presentation of the financial position, performance and cash flows of the company. The report notes:

This means the goodwill should not be stated at an amount in excess of its recoverable amount, that impairment losses should be recognised in a timely manner, and that disclosures of significant judgements and key assumptions related to the recoverability be transparent.

Please click to access the report on the IOSCO website.

The report, which follows the audit quality report of Tier 1 firms in July, sets out key inspection and supervision findings at Tier 2 and Tier 3 firms, alongside areas of good practice.  The report highlights that of the 13 audits inspected, only 38% required no more than limited improvements, 24% required more than limited improvements, and a further 38% required significant improvements.  Many of the findings were in routine areas such as the audit of journal entries and complying with archiving requirements.  Other significant findings were in the areas of judgement and estimates and going concern.  

In response to the findings the FRC has stated that 'Tier 2 and Tier 3 firms must prioritise audit quality improvements and respond swiftly'.  Such actions would include investing in their audit methodology, human resources and audit quality functions, learning from things that went wrong or went well, and seeking to embed a culture that recognises and prioritises audit quality.  The report highlights initiatives the FRC has undertaken to support firms in this area.

A press release and the full report are available on the FRC website.

The UKEB’s work is focused on influencing the development of high-quality international accounting standards that endorse the UK public good by ensuring transparency and comparability of financial information thereby sustaining confidence in the UK's capital markets.

The expected workplan for financial year 2024/25 will see the UKEB maintaining its focus on those aspects of the International Accounting Standards Board's (IASB's) agenda that are of highest priority to UK stakeholders.

The UKEB’s three-year strategy for the period 2022-25 was published in March 2022 following consultation. In the third year of the three-year strategy, the UKEB’s strategic objectives remain unchanged and it will continue to build on the previous year's work on achieving those objectives.

The strategic objectives for 2024/25 include:

• influencing the IASB and other global players to help ensure the development of high-quality international accounting standards that promote transparency and comparability of financial information and the smooth functioning of capital markets; 
• assessing all new and amended international accounting standards for adoption in the UK on a timely basis; and
• maintaining a robust operations framework to support its strategic objectives.

The UKEB's 2024/25 budget is contained within the Financial Reporting Council's (FRC's) draft 2024-25 plan and budget which was concurrently published.

The 2024/25 Regulatory Strategy consultation will run until 26 January 2024.

The press release, Draft 2024/25 Regulatory Strategy and invitation to comment are available from the UKEB website.

As the FRC continues its work to restore public trust and confidence in audit, corporate reporting and governance, while embedding its remit to support UK economic growth and competitiveness, the draft plan and budget sets out how it intends to deliver on its strategic priorities.

The draft plan and budget provides details of the priorities and key deliverables of each of the FRC's five divisions (Regulatory Standards, Supervision, Enforcement, Corporate Services and CEO division) which highlight how the FRC intends to deliver on the Government's priorities set out in its new remit.  It also covers the operational requirements and resourcing of the FRC and the UK Endorsement Board (UKEB) and sets out targets to measure success.

In 2024-25 the FRC will pause planned further growth due to delays to legislation which would have given the FRC a broader remit and new powers and will instead prioritise existing resources.  The combined budgeted cost of the FRC and the UKEB is also set to increase to £72m from £66.3m in the prior year as set out in the proposed expenditure and funding budget. 

A press release and the draft plan and budget 2024-25 are available on the FRC website.

This announcement follows its final status report, published in October 2023.  As of November 2023, the TCFD website will no longer be updated or monitored but will remain available to serve as a resource for materials developed by TCFD.

With the International Sustainability Standards Board’s (ISSB) inaugural standards having been released (IFRS S1 General Requirements for Disclosure of Sustainability-Related Financial Information and IFRS S2 Climate-related Disclosures), the TCFD’s work is now complete.  The Financial Stability Board (FSB) has therefore requested that the ISSB assume responsibility for monitoring progress on the state of climate-related financial disclosures by companies as of 2024.

This announcement does not change mandatory requirements in respect of TCFD disclosures. The Financial Conduct Authority (FCA) listing rule requiring listed companies to make disclosures that are consistent with the TCFD recommendations continues in force until and if the FCA changes the rule. The FCA has stated its intention to update its climate-related disclosure rules to reference the ISSB standards once they are available for use in the UK.

The announcement is available on the TCFD website.

The UKEB supports the proposals in the ED as they are expected to improve the consistency and understandability of the IFRS Accounting Standards concerned.

The comment letter and feedback statement are available on the UKEB website.

The educational material has been developed to help entities apply IFRS S2 and includes three examples that help illustrate how entities might approach nature and social aspects of their climate-related disclosures. The material does not affect any of the requirements within the standards. 

The publication follows the launch of the IFRS sustainability knowledge hub, which the press release describes as a core component of the IFRS Foundation’s focus on capacity building initiatives. 

Please click to access the educational material on the IFRS Foundation website. 

We welcome the opportunity to respond to FRED 84.

We commend the Financial Reporting Council (FRC) for acting promptly to address this issue and appreciate that the proposals in FRED 84 are consistent with our request in our response to FRED 82.

We support the FRC’s overall approach to improve the disclosures an entity provides about its supplier financing arrangements. However, we believe that these disclosures will also be relevant to the users of a qualifying entity and propose to expand the scope of these requirements to those entities as well, unless equivalent disclosures are included in the consolidated financial statements of the group in which the entity is consolidated. We also believe that financial institutions reporting under FRS 102 should be providing similar disclosures to financial institutions reporting under IFRS Accounting Standards. We propose that the FRC clarifies in the ‘Basis for Conclusions’ to FRS 102 that the principles in FRS 102 related to liquidity risk disclosures are based on requirements and application guidance under IFRS Accounting Standards. Lastly, we do not support the proposal that an entity that enters into supplier finance arrangements should disclose the carrying amount of financial liabilities for which the suppliers have already been paid by finance providers.

Our full comment letter is available here.