This is the FRC’s second three-year plan, and it once again focuses on plans to support its transition to the Audit, Reporting and Governance Authority (ARGA). The government was expected to introduce legislation in 2023 to grant the FRC new regulatory powers and funding as an independent statutory regulator, thereby creating the ARGA.
The FRC’s draft plan acknowledges the government’s delay in bringing this legislation, and has planned around the new expectation that the ARGA will be created in 2024.
The FRC intends to continue the work set out in its Position Paper published in July 2022, which outlines how it will support the transition in the period leading up to the passing of legislation. It expects its costs to increase by £8.1 million for 2023-2024, and its headcount to increase by 9.7% to 533 by March 2024, and to 600 by 2026-2027. The FRC notes that staff costs account for the largest proportion of its expenditure.
Priorities and deliverables 2023-24
The FRC has set out its intended actions and priorities under each of its divisions, to include:
Regulatory standards: this division sets the FRC’s audit, assurance, ethical, FRS accounting, and technical actuarial standards for the UK.
• Development and maintenance of standards and codes;
• Contribution to and influence of auditing, assurance and ethical standards, and non-financial reporting developments;
• Policy support for ARGA’s local audit systems leader role;
• Improving and innovating support for high-quality reporting and audit;
• Promoting the use of technology (for example, digital reporting); and
• Increased stakeholder engagement.
Supervision: this division delivers the FRC’s monitoring and oversight obligations in respect of audit, accounting, corporate reporting, and actuarial work.
• Deliver a programme of AQR inspections, CRR reviews and oversight functions and reporting;
• Improving and innovating support for higher audit quality and resilience;
• Approval and registration of audit firms;
• Assess the effectiveness of the firms’ implementation of new auditing and quality management standards;
• Develop a supervisory approach for audit committees and supervisory oversight strategy for the professional bodies;
• Develop the local audit system leader role and team in shadow form ahead of ARGA implementation;
• Reporting on implementation of operational separation;
• Develop market monitoring function; and
• Deliver projects on developing AQR and Improving the Quality of Auditor Education and Training.
Enforcement: this division ensures that those responsible for poor quality audit and reporting and the underlying poor behaviours are held to account, and supports root cause analysis.
• Fair, robust, and timely case closures;
• Upskilling and training to respond to enforcement changes and new powers from 2024 onwards;
• Collaboration with the Department for Business, Energy, and Industrial Strategy (BEIS) on planned legislative change; and
• Publication of the Annual Enforcement Review.
Corporate Services: this division is non-regulatory and focuses on supporting effective functioning, with a particular focus on creating a solid funding base during the three-year plan.
• Develop a statutory funding model for ARGA;
• Develop and implement an integrated information management strategy;
• Data analytics and reporting, economic advice and impact assessment, including to support the transition to ARGA;
• Appropriate workforce planning;
• Strengthen support infrastructure;
• Enhance the level of assurance activity against internal policies and controls;
• Legal support for all FRC activities; and
• Embed contingency planning processes and testing regime.
The strategy and plan & budget consultation is still in progress and will run until 27 January 2023. Comments can be sent to [email protected] until close of business on 27 January.
Click here for a copy of the FRC’s Draft Three Year Plan.
Click here for a copy of the FRC’s July 2022 Position Paper.
This article was produced in association with White & Case UK’s Public Company Advisory team. Read their original alert here.