Consultation on the future role of the FRC
The aim of the reforms is to create an FRC that is clearer about its role and purpose, proportionate in the execution of that purpose and in a strong position to promote the highest standards of corporate reporting, governance and auditing.
Stakeholders are invited to comment on whether the scope of the FRC’s regulatory activities should be narrowed to focus on areas of greatest concern to the operation of the capital markets and, in particular, on the following proposals:
- The FRC should set standards of governance, accounting, audit and actuarial work in the interests of investors in the corporate sector, and focus monitoring and enforcement activity primarily on publicly-traded and the largest private companies; and
- The scope of the FRC’s accountancy disciplinary arrangements should be narrowed to cover the quality of work and conduct of accountants in preparing and auditing reports for the capital markets, leaving other cases of potential misconduct to be dealt with by the relevant professional body.
The consultation also proposes reinforcing the FRC’s independence by providing it with:
- The power to require a Recognised Supervisory Body to impose sanctions on an audit firm and/or individual auditor in respect of poor quality work; and
- The ability to make its own rules for disciplinary arrangements in relation to accountants, without needing to obtain the agreement of the accountancy professional bodies.
The consultation also proposes replacing the FRC’s existing seven operating bodies with two Board Committees – one focusing on Codes and Standards, the other on Conduct.
The Minister responsible for Corporate Governance, Edward Davey said: “This Government’s ambition is to make the UK the best place in Europe to start, finance and grow a business. And the FRC has an important role to play in supporting an environment where that ambition can become a reality.
“The reforms we’re proposing will help the FRC to promote transparent and high quality financial reporting, and by doing so, increase confidence in the regulation of the accounting, audit and actuarial professions in the UK. They will improve the FRC’s effectiveness, clarify its role and enable it to better support economic growth. “
Baroness Hogg, chairman of the Financial Reporting Council, said: “At present the Financial Reporting Council consists of seven bodies to do just one core job, which is to promote good reporting and governance to foster investment. A streamlined, unified FRC will help us to regulate less and carry out our role more effectively.
“We are consulting on reforms we believe are urgently needed to secure our independence of those we regulate, reduce the risk of overlapping, over-regulation, and help us to promote the interests of the UK in the international regulatory arena.”
Responses to the consultation are invited by 10 January 2012. The intention is to implement the changes, guided by the responses to the consultation, in April 2012.