All change: Financial Reporting Council reformed
On 2 July the structure and functions of the Financial Reporting Council (FRC) changed conspicuously following parliamentary approval of its proposed reform.
The reform is aimed at simplifying the FRC’s structure and enabling it to operate as a unified regulatory body, with enhanced independence and a more proportionate range of sanctions.
The FRC is the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment. It does that primarily by setting UK codes and standards and guidance for governance, accounting, auditing and actuarial work and by monitoring and enforcing the application of the accounting and auditing standards. The FRC also supervises the regulatory activities of the actuarial profession and the professional accountancy bodies and operates independent disciplinary arrangements for public interest cases involving accountants and actuaries.
As a result of the reform, the FRC board has taken over a number of responsibilities that were previously delegated to its various operating bodies. In particular the FRC board will now be responsible for issuing and amending UK accounting, audit and actuarial standards, as well as updating the UK Corporate Governance and Stewardship Codes.
Under the new structure the FRC board is to be supported by three committees: Codes and Standards Committee (CSC), a Conduct Committee (CC) and an Executive Committee. As a consequence the FRC’s activities are now grouped around Codes and Standards and Conduct.
When taking decisions on standards the FRC board will be supported by the Codes and Standards Committee (CSC). The work of the CSC will cover the areas previously covered by the Accounting Standards Board (ASB), the Auditing Practices Board (APB), the Board for Actuarial Standards (BAS), and the Corporate Governance Committee (CGU).
The role of the CSC will be that of advising the FRC board on the steps to be taken to maintain an effective framework of UK codes and standards. The committee is also likely to be delegated responsibility for issuing guidance on the application of codes and standards and to ensure appropriate and effective UK input into international standard setting bodies.
The CSC is supported in its own right by three councils: the Accounting Council, which covers both accounting and narrative reporting, the Audit and Assurance Council and the Actuarial Council. The three councils provide advice to both the FRC board and the CSC and are an important part of the new decision-making structure with their proposals being put in full to the board. The scope of the councils’ work includes considering and advising on draft codes and standards, or amendments to them, and commenting on proposed developments in relation to international standards and regulations.
The new Conduct Committee (CC) will support the board by setting strategic goals for the supervisory, monitoring and disciplinary work of the FRC; it will also set standards for the quality of the supervisory work and advise on the type of regulatory intervention that would be most appropriate when new major issues emerge.
The scope of the CC’s work will include the areas previously covered by the Financial Reporting Review Panel (FRRP), the Professional Oversight Board (POB), the Audit Inspection Unit (AIU) and the Accounting and Actuarial Disciplinary Board (AADB).
The Conduct Committee is supported by two sub-committees: the Monitoring Committee, which ensures the consistency and quality of the FRC’s monitoring work, and the Case Management Committee, which advises on the handling of disciplinary cases.
The Executive Committee provides for the day to day management of the FRC’s resources, including staff, and activities, including the interaction between the Codes and Standards Committee and the Conduct Committee.
Notwithstanding the reform of the FRC’s structure and functions, the existing body of accounting, audit and actuarial standards, codes, guidance and proposals issued by the former operating bodies of the FRC remains in force.
The FRC’s website provides an overview of the new organisation structure.
As a result of the reorganisation the FRC’s website has also been completely overhauled and the microsites for the various operating bodies (ASB, APB, POB, FRRP, etc.) have been removed.
All the pre-existing publications and documentation, such as accounting and auditing standards, bulletins, practice notes, etc., are, however, still available from the website.