The UK’s Financial Reporting Council (FRC) has revealed plans to step up the scope of its work on the quality of parts of audits which are conducted overseas, as part of its plan to pave the way for a new regulator.
The FRC’s days are numbered after the government backed the Kingman review’s proposal to replace it with a new body, the Audit, Reporting and Governance Authority (ARGA).
As such, in its draft plan and budget for 2019/20, the FRC outlined how it intended to support the transition to the new authority.
Aside from expanding the scope of its overseas work, the FRC is also going to amend its Articles of Association to specify that, pending the creating of ARGA, all new appointments to its board, including the CEO, will be made by the Secretary of State.
It also said: “The Government have also asked us to consult on some specific changes to the regulatory framework that do not require legislation, with a view to making the changes following consultation and during the transition to ARGA. These include whether we should reclaim the approval and registration of audit firms conducting public interest audits, and the sanctions that should be applied under a new, centralised approval and registration regime.”
Aside from this preparation, the budget held few surprises. Following a number of high profile audit failures in 2018, the FRC highlighted securing major improvements to audit quality as another leading objective for the year.
It also plans to increase the number of corporate reporting reviews it will undertake, as well as working towards the promotion of corporate governance and investor stewardship.
Commenting on the overall budget, outgoing CEO Stephen Haddrill said: “In 2019/20, as we begin the transition to the new authority, ARGA, we will use our powers to promote the public interest in transparency and integrity in business. We are pursuing a step change in audit quality – revising audit and ethical standards, expanding our audit quality review regime, extending our audit firm monitoring and supervisory approach, and pursuing a heavier enforcement caseload. The audit market still faces much public scrutiny.
“We will work with the Competition and Markets Authority on its proposals for reform and with Sir Donald Brydon on his review of the role and purpose of audit. We are expanding our work to monitor the quality of corporate reports and leading debate on the future of corporate reporting. And we will be seeking substantially to enhance investor stewardship through a new Stewardship Code.”