The Financial Reporting Council (FRC) is set to increase its workload and budget, monitoring audits as well as compliance with the UK corporate governance code, before its transition to a new regulator.
The watchdog revealed its intentions as part of its plan and budget for 2019–20.
The work will include probing the way companies report on governance issues and how they put into practice the new code of governance introduced last year. It will be looking for key issues in company reporting of governance, including boardroom diversity.
In line with recent government policy statements, the FRC will also work to ease the transition to a new regulator— the Audit, Reporting and Governance Authority—proposed by the Kingman Review, which argued it should have an expanded remit and greater powers.
The FRC’s plan includes a substantially increased budget that grows from £28.6m to £37.8m, much of it aimed at recruitment to support increased activity. “Enforcement case costs” are expected to grow from £100,000 to £5m, sending a clear signal where the regulator intends to intensify its work.
Headcount is set to increase by at least 80. The FRC says if more staff are required it may ask the government for permission to use its reserves.
Stephen Haddrill, the FRC’s chief executive said: “The FRC’s Plan sets out a clear pathway towards the establishment of an enhanced authority, with stronger powers and greater resources, as quickly and effectively as possible.
“Ahead of full implementation of the Kingman proposals, the FRC will do all in its power to promote transparency and integrity in business, and improve audit quality, corporate governance and investor stewardship.”
At the core of the FRC plans is also an effort to combat a loss of confidence in audit. The watchdog has already set out how this might be achieved in a position paper and will consult over the summer. There is also a review under way of auditors’ “going concern” statements.
A more strategic approach
The FRC will also start monitoring compliance and reporting against the new corporate governance code published in 2018. This will include statements on diversity.
The FRC said: “Following the 2018 report from the Hampton Alexander Review, we are encouraging boards to take a more strategic approach to diversity and inclusion, and to consider their approach to reporting on it.
“We expect to see more of our largest companies providing greater information about their approach to boardroom diversity and insights on the actions they are taking to increase diversity at all levels.”
Elsewhere, the FRC is concerned with corporate culture and sustainability. The plan sets out how the new code “takes a broader view of governance” to emphasis corporate culture and stakeholders relations.
“The intention is that, by reporting on the application of the principles in a manner that can be evaluated, companies should demonstrate how the governance of the company contributes to its long-term sustainable success and achieves wider objectives.”
One of the key principles in the new code introduced the idea of a board’s responsibility to “wider society”. Principle A says: “A successful company is led by an effective and entrepreneurial board, whose role is to promote the long-term sustainable success of the company, generating value for shareholders and contributing to wider society.”