FRC annual report champions a ‘transformative year’
23 July: The Financial Reporting Council has published its latest annual report, claiming ‘significant progress’ in its ongoing bid to effectively end its own existence and morph into its new entity, the Audit, Reporting, Governance Authority (ARGA).
In its annual report, the accountancy and audit watchdog says it has now brought forward many of the three separate recommendations of Sir John Kingman, the CMA and Sir Donald Brydon into “a unified transformation programme”.
In the statement of former chairman Simon Dingemans – who replaced Win Bischoff, but left after just eight months over potential conflicts of interest between his FRC role and additional positions – said that “while government has still to conclude on a number of the recommendations before it for audit reform, the FRC is already moving within its existing powers to start to build a very different regulator, one that is fit for purpose, independent, decisive and agile”.
He also stressed that in relation to the transformation of the FRC itself, the intention is to “make changes ahead of legislation when possible, within the existing powers or where expectations of future powers are clearer”.
Together with supporting the transition to the ARGA, former HMRC head and new FRC chief executive Jon Thompson said the FRC’s key priorities for the year were to continue to drive a “step change” in audit quality, promote “quality corporate reporting” through the body’s corporate reporting reviews, set a new Stewardship Code for investors and continue to use its enforcement powers effectively.
“We have now implemented 20 of the 83 recommendations in the Kingman Review,” said Thompson. “We are progressing as much as we can whilst waiting for the legislation to establish the ARGA on a statutory footing.”
The FRC report says the body has identified six strategic priorities for the year.
The first is to support the transition to ARGA, to which end, the FRC says it has implemented 20 of the 83 recommendations in the Kingman Review, while “taking forward many others”.
Another stated core focus is to use its powers to set audit standards and monitor and supervise auditors to drive a step-change in audit quality. However, it admitted that it had carried out fewer Audit Quality Reviews in 2019/20 than planned, primarily due to resourcing constraints.
A major recruitment drive announced in October 2019, designed to support a muscular supervisory role and bolster its enforcement and audit inspection capabilities, has enjoyed some success as its ranks swelled by an additional 47, with 10 more primed to join by 2021. But this is still shy of the 80 new positions it identified as needing to fill in its 2019/20 Plan & Budget.
Another stated focus was for the watchdog to use its enforcement powers effectively. In 2019/20, it had concluded 13 full enforcement action cases during the year.
In terms of investigations, the FRC has completed 13 full enforcement action cases – the same amount as 2018/19, with 42 still ongoing. A further 14 have been opened within the last 12 months.
Notable financial sanctions include a £3.5m fine (discounted from £5m) for KPMG relating to BNY Mellon and a fine of £4.6m (reduced from £6.5m) for PwC regarding Redcentric plc. The total fines for the year amounted to £11.3m.
There were 27 non-financial sanctions imposed, down from 38 in 2018/19.