The comments are included in a submission from Pensions & Investment Research Consultants (PIRC) to a business, energy and industrial strategy (BEIS) committee inquiry on corporate governance. They relate to the FRC’s position on issues including the provision of a strategic report and the reporting of dividend payments under the Companies Act 2006.

In its evidence to the committee, which has just been published, PIRC says ‘company law is setting signposts in one direction, the FRC has been setting signposts in different directions.’

PIRC cites various pieces of FRC guidance on Section 393 of the Companies Act and ‘the true and fair view’, where it says the words are changed from what the legislation actually states. The FRC versions put new words in and some words were left out.

It is also critical of FRC published guidance in 2014 on Section 414C and Section 172, which took effect from 1 October 2013, saying ‘if one reads the FRC guidance without reading the legislation, the substance and form of the legislation is lost.’

PIRC conclude: ‘The problem escalates each time a new “signpost” is set by company law. Until the FRC admits that it has got existing signposts wrong, then it has to set up new signposts wrongly too.’

Its evidence states: ‘The fact that the FRC has persistently got the law wrong, might seem difficult to comprehend were it not for the fact that, the FRC has not been operating wholly independently from the accounting profession.’

To back up this claim, PIRC points out that the FRC has been using the same legal counsel that the ICAEW uses, which it says means the trade body of the accounting profession and the regulator share the same adviser.

It also takes issue with the FRC use of an FRC board member for FRC legal work (whose career included acting on defence matters for the accounting firms) who has been on one or other FRC board for more than 30 years.

PIRC said: ‘We believe that is unsatisfactory in principle, and unsatisfactory as it is far too long a tenure.’

As a result, PIRC argues that the FRC in its current form is unsupportable. It points out that the Treasury select committee has recently recommended that rule setting and enforcement functions carried out by the Financial Conduct Authority (FCA) are separated and says the same principle should be applicable to the FRC.

PIRC also says it is ‘wholly unsatisfactory’ for the FRC to use any lawyers or barristers with links to the accounting profession setting standards or giving guidance, arguing that this is akin to the Competition and Markets Authority using the same legal counsel as the large supermarkets or the electricity supply industry, and should be stopped.

In a letter to PIRC in response to its claims Paul George, executive director of the FRC's corporate governance and reporting division, said: 'We strongly refute any suggestion that decisions made by the FRC are affected by conflicts of interest. The FRC maintains and adheres to strict principles to ensure its independence.

'It is disappointing that you [PIRC] continue to pursue an agenda which in our view undermines confidence in corporate reporting.

‘I am sure we share a common desire to see continued improvements in the quality of reporting and I hope that you will contribute more constructively to our work in the future.'

PIRC’s evidence not to the BEIS committee is here.

A copy of the  FRC letter to Alan MacDougall, MD, PIRC is available here