The Financial Reporting Council (FRC) has published its annual report and says while it has made good progress over the year in its efforts to make audit more integral to corporate governance, it continues to have a number of areas of concern, including the slow pace of improvement in the quality of auditing of banks and building societies
The FRC’s Annual Report for 2013/14 is the first to be based on the new framework for the strategic report and includes its first financial statements prepared in accordance with the new UK GAAP – FRS 102.
The regulator’s total expenditure in the year was £26m compared to £25.5m in 2012/13, an increase of 1.9%. Based on total revenue of £26.1m (2012/13: £25.4m), which was up 2.4% up on 2012/13.
Income in the form of levies from professional bodies such as the ICAEW and ICAS, rose to £4.9m, up £400,000 on 2012/13, while income from publicly traded entities also increased to £6.3m, up £1.3m year on year, and large private entities also paid higher levies at £2.9m, up from £2.5m in the previous year. Government funding remained unchanged at £500,000 per annum.
Core costs were up in total by £1.9m (12.4%), largely as a result of increased staffing on priority projects and by facility costs following relocation to new offices in London Wall. Tangible assets have increased by £529,000 representing the capital costs incurred to 31 March 2014 in fitting out the new premises in the City of London.
The cost of audit quality review rose by 3%, but net expenditure on disciplinary case costs was 45.2% lower than the previous year, at £3.4m. Successful outcomes in a number of cases saw the regulator receive a total of £2.25m in costs.
Complying with the latest rules on remuneration reporting, the accounting regulator published the salary breakdowns for senior executives. FRC chief executive Stephen Haddrill was paid a total of £462,564 which included a bonus of £67,495, while Paul George, FRC executive director conduct, received £364,538 including a £41,000 bonus. Melanie McLaren, FRC’s executive director of codes and standards, was paid £347,280 including a bonus of £39,500.
Sir Winfried Bischoff, FRC chairman, said: ‘The FRC has made good progress in making audit more integral to corporate governance and has seen a positive response to its efforts to promote audit re-tendering. The new EU Audit Regulation and Directive reflects a great deal of work by the FRC to ensure UK audit regulation can remain effective and proportionate.’
As well as concerns over the quality of auditing of banks and building societies, which is currently subject to review, the FRC said other areas which it will continue to address in 2014/15 include implementation of Lord Sharman’s recommendations on going concern reporting, despite reservations from various stakeholder groups; promoting greater clarity in corporate reports; improving the quality of reporting by smaller listed and AIM quoted companies; and implementation of aspects of the EU Audit Regulation including reviewing auditor independence requirements.
The FRC also hints at international ambitions. The report states: ‘Looking ahead we see a need to give more attention to influencing international prudential regulators in financial services, particularly as they grapple with the tension between transparent reporting by banks and the risks that poses to market stability’.
The FRC indicates it would like to be given stronger powers in some areas, saying: ‘We are pleased to note that the new EU Audit Regulation provides for powers to secure information from companies in disciplinary cases. Although companies often assist us already, there can be delay as we convince them of the importance of doing so.’
It is also concerned about its relationship with the Department for Business, Innovation and Skills (BIS). It said it is in talks with BIS officials to discuss ‘the current limitations in what we can say about lessons learnt when there have been faults in reporting and auditing but the faults do not amount to misconduct and so will not be aired in a public tribunal’.
The FRC annual report is here: https://www.frc.org.uk/Our-Work/Publications/FRC-Board/FRC-Annual-Report-and-Accounts-2013-14-print-versi.pdf
The FRC has also released a YouTube video 'Financial Reporting Council: who we are, what we do' in which Sir Win, Haddrill and others explain the role and activities of the regulator. View it here http://www.youtube.com/watch?v=gkUJVdWkqfw
