Financial Reporting Council 3 Year Plan

| General

Financial Reporting Council 3 Year Plan

Potential New Regulator - Directors Beware – Claimants Take Care!!

On 5th April 2022 the Financial Reporting Council published its long-awaited three-year-plan setting out its vision, strategy and objectives for the world of Auditing and Accounting. It will also be of interest to lawyers as auditing requirements are a central component of contractual arrangements. It aims to move the FRC to a new regulator known as the Audit, Reporting and Governance Authority. It follows the UK Government’s consultation in 2021 entitled ‘Restoring Trust in Audit and Corporate Governance’.

Have There Been Any Problems with The Financial Reporting Council?

The FRC has been heavily criticised for years. The previous Chairman Simon Dingemans abandoned ship after merely seven months. Following his resignation position of FRC Chair has been vacant for over eighteen months and the UK Government has sought a successor ever since. On 26th January 2022 the well-respected businessman Sir Jan du Plessis, the previous chairman of Rio Tinto, criticised the FRC’s leadership deficiencies, described it’s governance was sub-standard’, and commented on its ‘pretty poor’ state, during his evidence to Parliament’s Business, Energy and Industrial Strategy Committee. He commented on the seemingly farcical situation where, ‘the regulator has lacked a permanent chair for goodness knows how long’. In his opinion, Mr du Plessis believes the current situation is unsatisfactory as the regulator is not being run correctly. He thinks it is important because the FRC sets the UK business weather.

What Is The Direction Of Travel?

The Three-Year Plan is being introduced after high-profile cases involving Patisserie Valerie, Carillion, HBOS and British Home Stores which lost the taxpayers’ trust and cost it eye-watering sums. Sir John Thompson conceded that the regulator had been ‘asleep at the wheel’ when these events were taking place These episodes highlighted the FRC’s shortcomings with many business leaders branding it ‘toothless’.

The three-year plan:

  • provided a detailed budget and expenses breakdown
  • introduced new responsibilities and powers
  • set out the platform to grow the size of its workforce to accommodate the respective new powers and accountabilities

How Will The FRC Seek To Achieve Its Objectives?

The FRC has set out five ways in which it seeks to achieve its goals. The new regulator seeks to put the interests of the public front and centre by becoming more:

  • independent
  • powerful and
  • high performing.

If the new regulator discovers evidence of a breach of audit and corporate reporting requirements, Parliament will provide it with the ability to investigate breaches and impose sanctions. The new rules will potentially affect every director involved with public interest companies. If Directors fail to:

  • keep adequate accounting records.
  • approve:
  • accounts only if they give a true and fair view and
  • sign the annual accounts and the directors’ report; and
  • provide:
  • a disclosure statement to the auditors and
  • information or explanations at the auditor’s request

they will fall foul of the rules

This approach appears to be a significant step further than was previously planned. Before this plan only Chief Executive Officers, Chief Financial Officers and the chairperson of the audit committee were to be under the remit of the rules. The corporate reporting, stewardship, actuarial work and corporate governance bar has been set high by the regulator. It will also judge how effectively affected parties have met the exacting standards. The public interest and proportionality appear to be central to the UK Government’s ambitions on enforcement

The Financial Reporting Council Time will tell how effective these potential reforms may be. However, the groundwork for the next three years has started. Lawyers will need to advise clients on the potential implications.

The Legists Content Team

ASSESSING FIRMS

#AddleshawGoddard #BakerMcKenzie #DLVPiper #HoganLovells #PinsentMasonsLLP #RPC #TraversSmithLLP #Ashurst #Bird&Bird #BryanCaveLeightonPaisner #CharlesRussellSpeechleysLLP #CMS #Dentons #GowlingWLG #Slaughter&May

THE ARTICLE WAS WRITTEN USING THE FOLLOWING SOURCES

[1] Financial Reporting Council – FRC publishes 3-Year Plan – takes further step towards ARGA – 05 April 2022 - News I Financial Reporting Council (frc.org.uk)

[2] Financial Reporting Council – 3 Year Plan – 2022-25 - FRC 3 Year Plan 2022-25

[3] UK Government Consultation – Restoring Trust in Audit and Corporate Governance - Restoring trust in audit and corporate governance - GOV.UK (www.gov.uk)

[4] Financial Reporting Council – What Makes a Good Audit – November 2021 - FRC AQR What Makes a Good Audit_November2021

[5] Financial Reporting Council – Annual Enforcement Review 2021 - FRC Annual Enforcement Review 2021

[6] Accountancy Daily – More powers for audit regulator as ARGA plans take shape – Croneri – 18 March 2021 - More powers for audit regulator as ARGA plans take shape | Accountancy Daily

[7] UK Government – Restoring trust in Audit and corporate governance: proposals on reforms – 18 March 2021 - Restoring trust in audit and corporate governance: proposals on reforms - GOV.UK (www.gov.uk)

[8] Taylor, M – MPs and industry unite in calls to break Big Four stranglehold -AccountingWeb – 4th April 2019 - MPs and industry unite in calls to break Big Four stranglehold | AccountingWEB

[9] Taylor, M – FRC in a ‘poor state’ ahead of three-year plan – 26 January 2022 - FRC in a ‘poor state’ ahead of three-year plan | AccountingWEB

[10] Taylor, M – New accounting watchdog risks doing more harm than good – 14 July 2021 – Accounting Web - New accounting watchdog risks doing more harm than good | AccountingWEB

[11] Goss, Louis – UK Government appoints four new directors to FRC in shakeup of audit regulator – 8th February 2022 – City AM - UK government appoints four new directors to FRC in shakeup of audit regulator (cityam.com)

[12] Part 15 Companies Act 2006 – Section 380 to Companies Act 2006 (legislation.gov.uk)

[13] ICAS – FRC issues draft three year plan an budget to prepare for the transition to ARGA – 21 January 2022 - FRC issues draft three-year plan and budget to prepare for the transition to ARGA | ICAS

banner

Articles

  • Meeting Targets and Getting Paid

    Meeting Targets and Getting Paid

    General 12.06.2024

    Any ambiguity to the fulfilment of these clauses can lead to a contract dispute, where lawyers may get involved to resolve the issue through negotiation, mediation, or even legal action if necessary

  • Proactive Lawyers in Sports Law

    Proactive Lawyers in Sports Law

    General 20.05.2024

    Many football disputes are resolved behind closed doors. This is because there is often the need to be amicable so to no disrupt the team harmony and function. The demands of star players are often

Stay Tuned

Receive regular news, updates, upcoming events and more...