The Financial Reporting Council (FRC) has revealed that its accountancy, audit and corporate governance business took a £1.7m hit to plunge it into a deficit of £592,000, compared to a surplus of £1.151m in 2010/11.

The figures were revealed in the accounting watchdog's annual report for 2011/12.

David Andrews, the FRC's policy & planning manager, said there were a number of reasons for the change, most notably an increase in operating expenditure of £2.4m.

'The key increases are in case costs of £1m. In 2011/12 we incurred £0.7m of expenditure relating to the reform of our powers and organisation structure,' he said.

'A number of new appointments of both staff and non-executives were necessary during the year. Recruitment costs are therefore £03.m higher.

'Income was £700,000 higher which was due to higher collection rates than in 2010/11 ie, more companies paid than previously. Having made the large surplus in 2010/11, the intention was to reduce the average amount payable by companies. The average reduction in rates was around 7%.'

However, total expenditure in 2011/12 was £1.1m lower than budget with savings made on audit inspection and disciplinary case costs. In the case of audit inspection, the reduced expenditure related to staffing and higher than expected recoveries from third party work.

Its audit inspection costs came in at £2.4m or 11.3% of budget, while its accountancy and actuarial disciplinary case costs were £3.8m in 2011/12 or 17.5% of budget, compared to £2.8m in the previous year.

Chief executive Stephen Haddrill saw his salary go up from £399,996 in 2010/11 to £403,504 in 2011/12.

The FRC highlighted plans for the future of Financial Reporting Standards (FRS), saying: 'Our proposals recommended replacing all current accounting standards with a single FRS; introducing a reduced disclosure framework; and retaining the financial reporting standard for smaller entities. We proposed that revised proposals will take effect from 1 January 2015.'

Looking to the future, FRC chairman Baroness Hogg, said: 'As well as the implementation of reform, including the identification of cost savings, we will focus on the improvement of our codes and standards; our international influence; and the strengthening of our conduct work, including the enhancement and overhaul of the disciplinary scheme.'