HC 391
HC 391
Financial Reporting
Council Limited
Annual Report and
Financial Statements 2021–2022
For the period 1 April 2021 to 31 March 2022
Presented to Parliament pursuant to the Secretary of State for
Business, Energy and Industrial Strategy by Command of Her Majesty
Ordered by the House of Commons to be printed on 19 July 2022
© Financial Reporting Council Limited copyright 2022
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ISBN 978-1-5286-3398-7
E02754187 07/22
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Printed in the UK by HH Associates Ltd. on behalf of the Controller of Her Majesty’s
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FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 5
Strategic Report 6
1. Our Purpose 7
2. 2021/22 Highlights 8
3. Statement by the Chair of FRC 10
4. The FRC at a Glance 13
5. Our Business Model 14
6. Chief Executive’s Report 16
7. Strategic Priorities for 2022/23 31
8. Key Performance Indicators 34
9. Our People 35
10. Section 172 and Stakeholder
Engagement 41
11. Environmental Impacts 43
12. Ethics and Compliance 48
13. Managing Complaints to the FRC 51
14. Financial Review 56
15. Risk Management 60
Financial Reports 119
26. Independent Auditor’s Report 120
27. Financial Statements 134
28. Notes to the Financial Statements 138
Governance 71
16. Governance and Transparency 72
17. Our Executive Committee 80
18. Our Board Members 85
19. Audit and Risk Committee Report 101
20. Conduct Committee Report 104
21. People Committee Report 105
22. Regulatory Standards and Codes
Committee Report 106
23. Supervision Committee Report 108
24. Remuneration Framework 109
25. Directors’ Report 113
Appendix 152
Report on the FRC's Independent
Oversight of the UK Endorsement
Board 153
Contents
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 7
1. Our Purpose
The purpose of the FRC is to serve the public interest by setting high
standards of corporate governance, reporting and audit, and by holding
to account those responsible for delivering them.
Objectives
Our remit
Acting in the public interest includes considering how our regulatory activities impact on
retail shareholders, suppliers, workers, customers, communities, pensioners and savers, and
financial institutions, all of whom have an interest in the health of companies.
Set high standards in corporate governance and stewardship, corporate reporting,
auditing, and actuarial work and assess the effectiveness of the application of
those standards, enforcing them proportionately where it is in the public interest.
Promote improvements and innovation in the areas for which we are responsible,
exploring good practice with a wide range of stakeholders.
Influence international standards and share best practice through membership of
a range of global and regional bodies, and incorporate appropriate standards into
the UK regulatory framework.
Create a more resilient audit market through greater competition and choice.
Transform the organisation into a new, high-performing, robust and independent
regulator, acting in the public interest.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 8
2. 2021/22 Highlights
April
Published Strategy,
Plan & Budget 2021/22
Stakeholder engagement for
BEIS Restoring trust in audit
and corporate governance
consultation
May
Revised Audit Standard
relating to fraud ISA(UK) 240
FRC Advisory Panels fully
established
June
Audit Firm Culture:
> Challenge
> Trust
> Transformation
July
Statement of Intent on Environmental,
Social and Governance challenges
JFAR Annual Risk perspective
Annual Audit Quality Inspection results
Annual Enforcement Review 2021
FRC Annual Report & Accounts 2020/21
August
Silentnight
enforcement case
sanctions announced
September
First signatories announced
to the new UK Stewardship
Code
Proposals to strengthen UK
Audit Firms Governance Code
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 9
October
Annual Review of Corporate
Reporting
Local audit quality inspection
report
Lab: Preparing for mandatory
TCFD reporting
November
What Makes a Good Audit?
Annual Review of Corporate
Governance
Lab: Ten-year anniversary
December
Nomination of
Sir Jan Du Plessis
as new Chair of FRC
January
Draft FRC 3-Year Plan
published for consultation
New FRC Stakeholder Insight
Group announced
Revised Audit Enforcement
Procedure comes into effect
February
Wates principles
review
Announcements
of new Non-Executive
Directors (NEDs)
March
Local audit consultation
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 10
3. Statement by the Chair of FRC
I am pleased to introduce this, my first Annual Report and
Accounts as Chair of the Financial Reporting Council. At this
transformative time for the regulator it is so important that the
good corporate governance of the FRC has been restored with a
full complement of Board members, and my first priorities have
been to listen to the executive and staff at the organisation and
get the Board up and running.
The roles I’ve had in my corporate life mean I bring real-life experience
to a field I understand well. I have been privileged to hold a number
of senior leadership positions in business, but this role is very different
in that it is entirely focused on serving the public interest by leading
an organisation that plays a critically important role in setting high
standards of corporate governance, reporting and audit, and holding
to account those responsible for delivering them. The confidence that
this gives to the proper functioning of the market and the UK economy
continues to be vital to the UK’s reputation as a great place to do
business and invest.
There has been a period of challenge and change for the FRC in
recent times.
My predecessor, Keith Skeoch, and the Board navigated the FRC
through this with characteristic authority. Sir Jon Thompson has not only
managed the organisation well in this time, but grown it significantly,
all the while delivering a demanding programme of transformation. I
put on record my thanks to Keith, and all the Non-Executive Directors
(NEDs) who have led the organisation during this transformation. I
would like to thank also Sir Jon, the executive team and every colleague
at the FRC for their dedication and hard work during this period of
change. This Report reflects that hard work.
In this report we set out the substantial change and impact that has
been achieved over the past year. To name but three examples that
reflect this:
• The transformation programme to change the culture, capability
and capacity of the organisation.
• The What Makes a Good Audit? publication and the high number of
applicants and signatories to the Stewardship Code, demonstrating
our role as an improvement regulator.
• The assertive supervision approach and increasingly strong and
significant enforcement actions which continue to hold firms to
account.
Sir Jan
du Plessis
Chair
“my first
priorities
have been to
listen to the
executive and
staff at the
organisation
and get the
Board up and
running”
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 11
These are meaningful developments in the evolution of the FRC, of
which we can be proud and which are having a real impact on corporate
governance, reporting and audit today, as well as laying the foundation
for the future. This Report sets out many more.
The FRC has an ambitious strategy for the future and the whole
organisation is working together on this shared ambition. I know this
from having spent the past few months with colleagues across the
organisation, listening and learning. I’ve also spent considerable time
listening to the views of a wide spectrum of stakeholders in order to
build a balanced perspective of their expectations of the FRC and their
views on the transformation that we have undergone.
The team are getting on with the job of building a stronger, more
effective regulator. We have already seen results with more effective
enforcement, operational separation of the Big Four and continued
setting of strong corporate governance and stewardship standards.
These changes and improved protections are already making a positive
difference to investors, employees, taxpayers and the UK economy.
The creation of the Audit, Reporting and Governance Authority (ARGA)
secures this progress and is the logical next step in the wider reform
programme. Any delay in setting policy and delivering the legislation
necessary to ensure ARGA has the necessary statutory powers is clearly
frustrating. I welcome the Government response to the consultation and
the FRC will continue to drive change, while setting out next steps to
deliver on these policies for stakeholders on Restoring trust in audit and
corporate governance.
Clearly, as Chair my central task is governance and a key focus for me
has been understanding and settling the governance of the FRC. I have
prioritised the successful integration of new Board members, ensuring
the right people are on the right committees, building on our capability
and capacity to deliver, and ensuring that we continue to embed the
right culture within the organisation. For the first time, all five board
committees are exclusively populated by non-executives, and for the
organisation that sets standards of corporate governance we are now
in a much improved state ourselves in putting into action our own
recommended best practice.
Much has been done and there is more to do – we have an ambitious
strategy and I look forward to working with colleagues to deliver that
strategy and change.
“I welcome
the Governm-
ent response”
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 12
In summary, I believe that we will have succeeded when:
• the audit profession has improved audit quality in the public interest
and embedded the operational separation of its audit and non-audit
functions into the Big Four firms;
• the corporate sector accepts that it has a greater role to play, in
particular around the robustness of internal control systems;
• the broader investment community has demonstrated that it accepts
its obligations to demand best practice in corporate governance and
reporting of its investee companies;
• the FRC is respected by its stakeholders as a firm and proportionate
regulator, and one with powers underpinned by statute.
I look forward to reporting on our progress on these aims and in
delivering the FRC’s 3-Year Plan annually during the course of my
tenure as Chair.
Sir Jan du Plessis
Chair
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 13
4. The FRC at a Glance
The FRC’s Board and executives believe strongly in the important contribution our
activities make towards improved outcomes for all stakeholders in our ecosystem: greater
transparency, increased trust in UK markets and an effective market that can lead to lower
cost of capital for corporate companies. This is important for stakeholders, large and small,
across the country, from workers and pension holders to institutional investors and large
corporate organisations. For more about our stakeholders and how we engage with them,
see page 41.
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FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 13
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 14
System Partner
Educating, collaborating,
and supporting continuous
improvement
Supervisor
Supervision and monitoring
of requirements, culture
and behaviours
Facilitator
Encouraging good
practice through
structured engagement
Enforcer
Investigating conduct and
applying proportionate
sanctions and directions
The four faces
• Lead the development of public and
technical policy, informed by influential
investor and stakeholder engagement.
• Set Codes, standards and guidance that
support high-quality corporate reporting,
corporate governance and stewardship,
and audit and actuarial work.
• Drive innovation in the public interest for
our stakeholders.
• Influence international standard setting
and collaborate with other regulators.
• Drive the application of high standards
in corporate reporting, auditing and
actuarial work through proportionate and
risk-focused enforcement action where it
is in the public interest.
• Promote improvements and innovation in
these areas by communicating clear and
impactful messages through enforcement
cases and publications, and through the
setting and monitoring of effective non-
financial sanctions.
• Deliver our statutory responsibilities
for corporate reporting review and as
the Competent Authority in respect of
statutory auditors and the audit market.
• Monitor the application of corporate
reporting and audit standards, and hold
to account those that fail to meet these
standards.
• Promote improvements and innovation in
corporate reporting and auditing work.
• Promote a more resilient audit market.
• Support the regulatory divisions by
providing a robust and resilient framework
for the delivery of FRC’s wider objectives.
• Support the FRC’s transformation to
a modern, forward-looking regulator
as a trusted partner and adviser to the
business and through our partnership
with BEIS.
Regulatory Standards
Enforcement
Supervision
Corporate Services
5. Our Business Model
What kind of regulator is the FRC and does ARGA need to be?
The adoption of a new model of the ‘4 faces of regulation’ to demonstrate how the FRC,
and in future the ARGA, will regulate has prompted thoughtful engagement and discussion,
both internally and with our wider stakeholders. The model captures the differing regulatory
stances, using hard and soft levers appropriate to our objectives.
What we do
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 15
Our Values
Influential
Through technical expertise and thought
leadership, our people innovate to drive
change. They develop themselves and
others, speak up, value diversity and
support others to do the right thing.
Our people act in a professional,
proportionate, consistent manner
to ensure robust standards of
decision-making and delivery, both
internally and externally.
Fair
Our people are decisive,
accountable and collaborative
when working with others to share
information and experiences
to improve outcomes.
Effective
Our people challenge
ideas, make evidence-based
decisions and always act with
integrity.
Independent
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 15
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 16
6. Chief Executive’s Report
Thanks to the hard work of everyone at the FRC, we have worked at
pace to become a more assertive regulator. Our external reputation has
never been higher thanks to all of our staff and stakeholders embracing
the need for change and a new approach.
While we acknowledge that delays to the government’s reform, through
the consultation and response to the White Paper on Restoring trust
in audit and corporate governance and subsequent legislation, have
been frustrating to all concerned, at the FRC we continue to transform
ourselves into an improvement regulator. We work with the government
to pursue the legislative powers that are needed to complete reform.
We know – and stakeholders agree – that fundamental reform is vital to
restoring trust in the UK’s audit and corporate governance ecosystem
and protecting the wide range of stakeholders that rely on good
corporate governance, including pensioners, investors and taxpayers.
This is why we welcome the publication of the Government response in
May, and have set out the next steps that the FRC will be taking to take
forward these policies.
To be clear, we cannot become ARGA without legislation. This does not
mean the reform agenda stops. We continue to be transparent with
stakeholders about the need for further consultations to agree the
implementation and phasing of changes to the market. We will keep
stakeholders informed of our progress towards becoming ARGA and
will set out our view on what further actions the FRC can take ahead of
legislation, in due course.
Some highlights from the past year demonstrate just how transformative
the changes at the FRC and across the market have already been:
• The FRC is demonstrating confidence and maturity in its role as a
robust, assertive regulator and in setting out what kind of regulator
ARGA will be. Our operational and leadership changes, and growth
over the last year, have set us up for success. The adoption of a
new model of the ‘4 faces of regulation’ to demonstrate how we/
how ARGA will regulate has prompted thoughtful engagement
and discussion both internally and with our wider stakeholders
(see page 14).
“another year
of continued
progress...”
Sir Jonathan
Thompson
Chief Executive
Officer and
Accounting
Officer
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 17
• We established a new supervisory approach for audit firm and audit
market supervision to work more closely with regulated entities, and
this is also reflected in a more assertive approach in our dealings and
communications with the firms.
• In our role as an improvement regulator, we have published useful
guidance, such as What Makes a Good Audit?, as the first in a planned
series of guidance for firms and practitioners. Our significant progress
made on improving the number and quality of signatories to the
Stewardship Code demonstrates how we can influence quality and
best engagement practice for investors.
This year, the FRC also published its first 3-Year Plan for the organisation,
meeting a clear stakeholder demand for longer-term planning. It was
also the first year that the FRC was formally subject to the Regulators'
Code. The FRC also provides support to and has oversight of the
governance of the UK Endorsement Board, who have marked their
first year in operation.
Our Stakeholder Engagement team conducted the largest ever
engagement exercise for the organisation as part of the government’s
consultation on the White Paper Restoring trust in audit and corporate
governance, reaching thousands of stakeholders and leading to over
600 consultation responses delivered to BEIS.
Finally, I am particularly pleased to welcome our new permanent
Chair, Sir Jan du Plessis, and new Board members to the FRC. These
appointments have restored our leadership in line with the best practice
we promote. I would like to thank Keith Skeoch for his work as interim
Chair, and the other Board members for their support and hard work
during the transition to the new governance structure.
Sir Jon Thompson
Chief Executive Officer
“conducted
the largest
ever engage-
ment exercise
for the
organisation”
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 18
105 252
374
100
%
152
80
%
10
45
600
applicants and 74
successful signatories to
the Stewardship Code
Corporate Reporting
Review reports
completed
staff
of complaints responded
to promptly within our
service level agreement
Audit Quality Review
reports
staff proud to work for
the FRC
years of the FRC Lab
current investigations
Largest ever consultation
engagement leading to
over 600 responses to BEIS
In 2021/22 we have…
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 18
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 19
Strategy and change
The strategy and change team drives and embeds transformation across
the organisation, supports project and programme management to
deliver change, and is responsible for the development of the FRC’s
strategy and plan. The function reports to the CEO, is cross-cutting and
focuses on managing change and continuous improvement across the
whole organisation.
This year, the team focused on embedding a more mature,
Transformation Programme into the organisation and our operations,
and developing the FRC’s first 3-Year Plan. As we awaited the
Government’s consultation response, published on 31 May 2022,
the focus of the team during much of the year was on planning and
delivery of changes that we can control within our existing remit, and
on preparing for the future. This means confidently managing change,
supporting the divisions to enhance their existing regulatory functions,
and by leading the conversation where we don’t yet have statutory
powers.
Our work is not just about the transformation to ARGA – our focus
is about the impact of clear purpose and strategy, and identifying
where we can effect change well and in a managed way that helps our
stakeholders see the value of the FRC’s activities and aligns well with
our culture.
This year the team has delivered the following:
• Consulted on and published the FRC’s first 3-Year Plan.
• Ensured the FRC meets its requirements under the Regulators’ Code.
• Established the Project Management Office as a separate function
to mature our approach to project management; aligning strategic
objectives with risk, KPIs and good management information to make
better organisational decisions.
• Developed the FRC’s relationship with other regulators, looking at
regulatory reform and better regulation (as set out by government
in The Benefits of Brexit paper), information gateways, and
benchmarking ourselves against peer organisations.
• Further developed the transformation programme – now comprising
24 individual delivery projects, of which 19 require some form of
legislation in order to progress fully.
“consulted on
and published
the FRC’s first
3-Year Plan”
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 20
Case study: Supporting better pensions information
The recent Department for Work and Pensions consultation sets out
plans to introduce pensions dashboards, an electronic communications
service intended to be used by individuals to access consistent and
clear information about their pensions. This government initiative will
transform the way people engage with their pensions. It will support
people’s understanding of their estimated retirement income. As such,
it is vital that the illustrations displayed are meaningful to individuals.
The proposed changes to Actuarial Standard (AS) TM1 are essential to
ensure it remains fit for purpose in the new era. The actuarial team at
the FRC has been working closely with the Government to support the
pensions dashboard initiative, contributing to crucial work which will
enable pensions dashboards to come to fruition.
More information about the standard AS TM1 can be found on the
FRC website.
This year the division positively impacted on our stakeholders and
regulated communities by the following:
• Delivered Codes, standards and guidance as set out in the strategy
and plan to maintain a framework of standards in the UK that the FRC
can monitor and inspect against. We use the feedback loop from other
divisions to improve our standards and input into the development
of international standards and Codes, and the division also provides a
lens back into the organisation, which helps us explain our work and
interventions on an outcome basis to stakeholders.
• A revised ISA (UK) 240 standard on fraud in May 2021 demonstrated
to stakeholders that the FRC is agile and responsive where there is a
clear need.
• Two application rounds of signatories to the Stewardship Code have
been completed, raising quality of stewardship and maintaining a
clear link between stewardship and corporate governance.
Regulatory Standards
The Regulatory Standards division develops Codes, standards
and guidance to support the delivery of high-quality work, and
innovation. This is done both through direct policy work in the UK
and by influencing the development of international standards. This
is supported by thought leadership and stakeholder engagement,
bringing insight into the teams and making optimal use of the feedback
loop that comes from monitoring and regulatory activities undertaken
by Supervision and Enforcement teams.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 21
Case study: Coordinating our thinking and response
to climate change and ESG
There is a clear focus in the UK and internationally on how companies
report the impact of their activities on the environment and on
the wider environmental and social challenges to which company
business models must respond.
Companies, auditors, actuaries, investors and others face a changing
regulatory environment as reporting and activity adapt to meet these
needs. However, underlying this changing regulatory environment, a
range of challenges need to be addressed to ensure that we build an
effective framework fit for the future.
Under our remit, we want to leverage our role and responsibilities
alongside other regulators, the market and other stakeholders to
help support a framework that allows for the growth of sustainable
businesses. This involves understanding how the actions of companies
affect the societies in which they operate, how they report on this,
and how they are addressing this impact.
To deliver on this commitment and lead our thinking on ESG and
climate change, we established a cross-FRC Steering Group to act
as an advisory body for the Executive Committee (ExCo) and, where
appropriate, the Board. The group:
• serves the public interest by encouraging high-quality governance,
reporting and stewardship of ESG and climate related issues;
• supports companies, investors, auditors and actuaries to enhance
the effectiveness of their ESG and climate-related activities by
issuing Codes, standards and guidance to promote high-quality
governance, reporting, assurance and stewardship;
• holds those to account that do not meet statutory or regulatory
requirements.
See the FRC website for more information on our work on climate
change.
Businesses operate globally, and the UK economy is part of a global
system. Therefore, our international influencing activity is crucial to
ensure a successful outcome for the UK economy, and that international
standards and codes are responsive to the needs of UK stakeholders in
the public interest. This isn’t about gold-plating reporting and governance
in the UK but helping to position the UK as the best place to invest and
do business, thanks to our strong corporate governance, reporting and
audit regulation.
We expect
much
evolution
of the UK’s
governance,
reporting,
audit,
actuarial and
investment
systems as
we aim for
a more
sustainable
future.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 22
Over the coming year the Division will focus on the following:
• Resetting the programme of activities for the FRC Lab, which
recently celebrated its tenth anniversary, which will look at areas
including digital, taxonomies and ESG data, and what net-zero
means for corporate reporting.
• We will focus on digital reporting, joining up with other
organisations, such as the FCA, Companies House and HMRC, and
have established a cross-FRC technology group to ensure that we
join up our approach to these issues.
• The stakeholder engagement and corporate affairs team supports
the whole of the FRC. After a year which saw our highest level
of engagement ever during the consultation on the government
White Paper, the team have increased the reach, engagement and
targeting of our communications and activity programme, and will
continue to engage through the new Stakeholder Insight Group,
sharing intelligence and being audience-led/segmenting our
communications to provide a more effective sharing of information
and content with key stakeholders. Next year will also see work
begin on refreshing the FRC website to deliver an improved user
experience to all audiences.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 23
Case study: What makes a good audit?
It is vital that investors, financial market participants and all those
who depend on companies in the UK, can rely on the information
they publish. Audit is key to assuring investors and others that
company reports are both accurate and meaningful in setting out an
entity’s affairs and prospects, and an important part of maintaining
trust in the integrity of corporate Britain. We are often asked what
does a good audit look like?
This year we set out our views on what conducting a good audit
should look like.
We consider there are three key elements: risk assessment and
planning, execution of the audit, and completion and reporting.
Delivery of the various aspects within these elements depends
on a high-performing audit practice.
We consider there are six elements to achieving this: assessing
firm quality risks; mindset, culture, governance and leadership;
performance monitoring and remediation; quality monitoring;
resources (including recruitment and training); and information
and communications.
What Makes a Good Audit? sets out these six elements, highlighting
best practice we have seen in each.
Supervision
The Supervision division sets high standards in corporate governance
and stewardship, corporate reporting, auditing and actuarial work, and
assesses the effectiveness of how they are applied. The division promotes
improvements and innovation by exploring good practice with a wide
range of stakeholders to raise the quality of audit and corporate reporting.
The FRC is becoming increasingly assertive in our supervision of audit
firms. We are also making good progress in our ambition to become an
improvement regulator. For example, this year we have strengthened
the tone of our annual letters to firms and will be reclaiming key
powers from the professional bodies to enhance our supervisory
tool kit. We have also sought to raise the quality of audit through
publishing the FRC’s view on What Makes a Good Audit? (see case study
below). Our thematic reviews provide regular insight into areas for
significant market improvement and share best practice across firms
and practitioners.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 24
This year we have:
• assessed the quality of corporate reporting in the UK by reviewing
the quality of 252 company reports and accounts, compliance with
reporting requirements;
• improved audit quality by inspecting 152 audits of public interest
entities (PIEs), public sector bodies and other entities;
• improved audit firms’ approach to audit quality and audit firm
resilience by supervising PIE audit firms, using a tiering approach;
• improved and enhanced audit quality, audit firm and audit market
resilience through thematic projects on key supervisory pillars and
developing firm operational frameworks;
• overseen professional bodies to improve their approach to audit
quality by inspecting audit regulatory functions performed by them;
• protected capital markets and promoted UK auditors internationally
by registering third-country auditors, assessing third countries’
equivalence and adequacy, and agreeing mutual recognition
agreements.
Next year, we will continue to develop our assertive supervisory
approach and our role in improvement, building on the well-received
What Makes a Good Audit? publication. We will take on the new role for
the FRC in local audit systems leadership. We will increase our stakeholder
engagement, especially with Audit Committee Chairs, and we will prepare
for transformation to ARGA and the new supervisory powers that we
expect to gain.
“This year we
set out our
views on what
conducting
a good audit
should look
like.”
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 25
Enforcement
The Enforcement division supports the application of high standards in
corporate reporting, auditing and actuarial work through proportionate
and risk-focused enforcement action, where it is in the public interest.
The division promotes improvements by communicating clear
messages through enforcement outcomes and publications, such
as the Annual Enforcement Review, and by setting and monitoring
effective non-financial sanctions. A strong feedback loop within the
FRC ensures that the work of Regulatory Standards and Supervision
feeds into Enforcement and, in turn, that Enforcement findings inform
the work of Regulatory Standards and Supervision.
This year we have:
• continued to improve case handling and timeliness;
• grown the team in terms of building strength and depth in capacity/
capability by increasing our headcount to 63 staff, including 29
lawyers and 23 forensic accountants;
• conducted 45 current investigations;
• resolved 13 cases through settlement;
• closed 3 cases with no action;
• conducted 1 Tribunal hearing and published the report of another.
Despite increased numbers and complexity of cases, a key goal of the
division over the last year has been to improve efficiency and capacity,
and therefore the timeliness of enforcement outcomes, and we will
continue this work in the coming year.
It is important to note that no regulator can prevent corporate
failure and neither does the FRC have power to provide redress or
compensation for poor quality financial statements, actuarial work or
audits. Nor can we reperform audits. Enforcement action is designed
to protect the public interest by upholding standards in corporate
reporting, audit and actuarial work and through effective sanctions to
identify and deter poor behaviour, raise quality standards and drive
improvements.
“A strong
feedback loop
within the FRC
ensures that
the work of
Regulatory
Standards and
Supervision
feeds into
Enforcement
and in turn
that
Enforcement
findings
inform the
work of
Regulatory
Standards and
Supervision.“
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 26
Corporate Services
The Corporate Services division supports the work of the FRC by
providing professional HR, finance, risk, legal, IT, economist advice and
research, and data and analytics services to ensure that the organisation
is well run and complies with all relevant laws and duties. We are still
in the process of improving the infrastructure for the FRC and setting
the foundations for ARGA, but good progress has been made already.
We have seen year-on-year improvements across all indicators, and
the organisation has grown in capacity and capability, all of which is
supported by the division.
Some highlights of the year include the following:
• Continued good quality recruitment (increased headcount to 80 staff
over the course of the year).
• Initiated a new learning and development strategy with an online
‘hub’ for staff to manage their own professional development and
access a wide range of courses and materials.
• Our People survey continues to show improvement across key
indicators each year (see page 35).
• New FRC Behaviours were launched to support our Values and ensure
these are embedded within everything we do.
• Continued to provide support for hybrid working and working from
home as we emerged from the pandemic.
• Internal audit reports are positive and reflect the increased maturity of
the organisation’s understanding of risk and controls.
• Launched a project to better understand the breadth of the FRC’s
management and data.
• Better internal reporting of KPIs.
• Conducted a consultation following a review of the Audit Enforcement
Procedure, and introduced the revised Procedure.
• Revised and updated complaints handling procedures.
• Established a research steering group, and enhanced direction of the
research projects and themes.
• Worked with BEIS on the legal and funding issues for transformation.
• Enhanced risk management, internal controls testing and a target risk
maturity.
• Closer supplier management procedures and reporting.
• Embraced reporting during the first year we became formally subject
to the Regulator’s Code.
We continue to grapple with similar issues as our stakeholders in relation
to the challenges of cybersecurity, working from home and related risks.
Transparency and self-improvement are key, rather than complacency.
“Our People
survey
continues
to show
improvement
across key
indicators
each year“
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 27
What we said we’d do...
What we said we’d do in Strategy, Plan and Budget 2021
• The number of people we employ will increase by 16% to 417 by
March 2022.
• Produce a new 3-year Strategy, Plan and Budget.
Regulatory Standards
• Develop and maintain UK and Ireland accounting standards (GAAP)
in a timely fashion, whilst also ensuring that the UK endorsement
process for IFRS provides accountability and transparency by
establishing due process oversight.
• Issue a feedback statement and next steps following the FRC’s report
on the Future of Corporate Reporting.
• Develop and maintain UK auditing standards through adopting and,
where appropriate, augmenting international standards, to support
the delivery of high-quality audit.
• Work to operationalise the audit market competition policy proposals
set out in the government’s consultation, ahead of legislation.
• Develop our actuarial policy function, carrying out a post-
implementation review of Technical Actuarial Standards (delayed from
2020) and supporting the Joint Forum on Actuarial Regulation (JFAR).
• Provide actuarial expertise to the Supervision and Enforcement
divisions in an effective manner.
• Undertake assessments of performance against the UK Corporate
Governance Code, the UK Stewardship Code and the Wates
Corporate Governance Code for Large Private Companies.
• Subject to the outcome of government consultation, consult on
revisions to the UK Corporate Governance Code and associated
guidance ahead of legislation.
• Deliver FRC Lab reports on stakeholder reporting and section 172
of the Companies Act 2006, risk, uncertainties and scenarios, and
performance metrics.
What we’ve
done
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 28
What we said we’d do in Strategy, Plan and Budget 2021
Regulatory Standards continued
• Deliver improvements to the FRC’s stakeholder engagement
function, including through a refreshed communications strategy and
increased use of digital platforms.
• Support the FRC’s transformation into ARGA through establishing
a programme of work aimed at reviewing and revising standards,
Codes and guidance, where appropriate, in advance of legislation.
• Build our technology and innovation outreach and embed digital into
our core policy areas.
• The independent reviews included recommendations for ARGA to
take on two new functions: audit committee supervision and actuarial
monitoring. The timetable for taking on these functions is dependent
on the results of government consultation and remains uncertain.
• Any new functions will require policy support from the Regulatory
Standards division, and the Supervision division will be responsible
for supervision and monitoring activities.
Supervision
• Taking a risk-based approach, maintain the scope and number
of reviews undertaken:
– 140–150 Audit Quality Reviews (AQRs) in 2021/22; and
– 240–260 Corporate Reporting Reviews (CRRs) in 2021/22.
• Use thematic and cross-market reviews to promote improvements
in corporate reporting, audit quality and audit market resilience.
• Build and deepen our forward-looking supervision of the major
audit firms (including governance, systems and audit quality control,
risk management and culture), identifying priorities for each firm to
improve audit quality and to hold them accountable for
delivering them.
• Further develop our oversight of the professional bodies, taking
over the decision-making function of PIE audit firm and auditor
registration as a tool for our supervision of audit firms.
What we’ve
done
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 29
What we said we’d do in Strategy, Plan and Budget 2021
Supervision continued
• Further develop and share our views on what constitutes high-quality
audit, including in response to changing circumstances, such as the
impact of Covid-19.
• Support the FRC’s transformation programme, delivering reforms
where they can be taken forward ahead of legislation, PIE audit
firm/auditor registration and operational separation of Big 4 audit
practices from the rest of the firm.
Enforcement
• Deliver robust, fair and transparent regulatory outcomes whilst
continuing to monitor the impact of the Covid-19 pandemic,
ensuring a proportionate and risk-based response in the public
interest.
• Deliver investigations and enforcement action in an increasingly
timely manner, focusing on those within our power responsible for
preparation of financial statements, and their audit.
• Create long-term behavioural changes by working closely with the
Supervision and Regulatory Standards divisions to deliver a holistic
regulatory approach.
• Promote improvements through communicating clear and impactful
messages in our enforcement outcomes, highlighting those firms
that have demonstrated their commitment proactively to identify,
remediate and report where standards are not met, or ethical
failures occur.
• Support the transformation of the organisation into ARGA by
working collaboratively with internal and external stakeholders.
The independent reviews included new enforcement regime
recommendations for directors, accountants and potentially actuaries.
The division will work alongside BEIS and the transformation
programme to develop the framework for these regimes, subject
to the results of government consultation.
What we’ve
done
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 30
What we said we’d do in Strategy, Plan and Budget 2021
Corporate Services
• Deliver the supporting pillars of a new robust and independent
regulator by delivering further the organisational and operational
maturity – across risk and assurance, business resilience (including
contingency planning and testing), revenue and budget
management, and information management and security.
• Support organisational growth and increased capabilities to set a
medium-term workplace strategy to encompass career development
and progression, with learning and development, aligned to the
strategic objectives, and refresh the organisation’s culture and values,
in particular in the light of the high level of growth and recruitment,
and the lessons of the pandemic.
• Review and set the medium-term IT and information management
strategy and implement the recommendations to support
organisational resilience and effective decision-making, drawing on
the data and intelligence available.
• Embed the new governance arrangements and support the new
board and NEDs in discharging their responsibilities.
• Continue providing a range of expert support services – legal, finance
and risk, HR, IT, and economics, research and data analytics, including
to the UK Endorsement Board (UKEB).
• Deliver legal, funding and economist support for the transformation
programme.
What we’ve
done
7. Strategic Priorities for 2022/23
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 31
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 32
7. Strategic Priorities for 2022/23
We will focus our priorities in 2022/23 on those areas where we anticipate either an
increased volume of work to meet our statutory obligations or where investment in new
capacity is justified. This will ensure we maintain the quality and effectiveness of our existing
work and discharge our statutory duties whilst scaling towards our optimal size as ARGA.
Regulatory Standards and Codes
• Development and maintenance of standards and Codes, including the periodic review
of FRS 102, adoption of revised ISAs (UK) and post-implementation review and revision
of technical actuarial standards.
• Alignment of our corporate governance and stewardship monitoring and evaluation
programme.
• International influencing of auditing and ethical standards, and significant contribution
to non-financial reporting developments in the UK and internationally.
• Activities focused on improvements and innovation to support high-quality reporting
and audit quality, including establishment of a new ‘Audit Sandbox’ to test new and
innovative ideas in a safe environment.
• Promoting the use of technology throughout our policy areas.
• Supporting FRC’s objectives and activities through continued stakeholder engagement
with impact and influence, including a review of our annual publications to ensure
impact and relevance.
Supervision
• Deliver a full programme of high-quality AQR inspections, CRR reviews and professional
oversight visits, and publish associated reporting, including thematic reviews.
• Carry out ISQC (UK) 1 inspection work and prepare for ISQM (UK) 1.
• Increase supervision of audit firm culture.
• Assess audit firms’ adoption of operational separation principles.
• Implement PIE audit registration decision-making.
• Increase intensity of forward-looking supervision of audit firms, with more ‘joined up’
regulation of firms’ actions on quality.
• Preparation for ARGA’s local audit systems leader role.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 33
• Negotiate mutual recognition agreements following the EU exit.
• Perform equivalence and adequacy assessments.
Enforcement
• Fair, robust and timely case resolution through prioritised, proportionate and
risk-focused investigations.
• Recruitment, upskilling and training to meet increased case demands, respond to
changes in the AEP from January 2022 and prepare for implementation of future powers
arising from regulatory reform.
• Driving improved behaviours through messaging case outcomes and publication of the
Annual Enforcement Review.
Corporate Services
• Develop a statutory funding model for ARGA.
• Develop and implement an integrated information management strategy, including a
medium-term IT strategy and enhanced data analytics and reporting.
• Enhance cybersecurity risk management.
• Appropriate workforce planning, aligned with our business planning cycle and designed
to incentivise, reward and retain key skills.
• Strengthen our support infrastructure, including in finance and procurement systems,
internal controls and IT.
• Legal support for regulatory reform, and legal and operational support for UKEB.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 34
8. Key Performance Indicators (KPIs)
Last year, we set out several KPIs against which we said we would report at the end of the
year. The FRC’s ExCo regularly receives detailed management information which underpins
each of the published KPIs. Our 2021/22 performance against some of the key measures is
shown below, and going forward we will show the performance trend of each year on year.
Category
Supervision
and
Monitoring
Enforcement
Financial and
operational
performance
Target (FY)
140-150
240-260
75%
100%
100%
-43.1m
396
100%
13
Performance (FY)
152
252
79%
100%
40%
-40.2m
374
100%
12
Measure
Number of AQR reports completed
Number of CRR reports completed
Complaints against professional
bodies for auditors, accountants
and actuaries investigated and
responded to within 6 weeks
Constructive engagement cases
concluded within 12 months
Enforcement cases concluded,
settled, or closed within two-year
target*
Expenditure**
Recruitment (excluding UKEB)
FRC complaints responded to
within service level agreement time
frame
Research projects undertaken
* The Enforcement KPI is a period of two years between commencement of an investigation and service of either the
Proposed Formal Complaint (PFC) or Investigation Report (IR) (or closure or settlement if sooner). Please see the FRC's
Annual Enforcement Review for further details on our enforcement activities and findings during the year.
** Expenditure precludes UKEB and Case Costs. Performance (FY) of £40.2m precludes £2.9m for UKEB and £2.4m
Case Costs.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 35
9. Our People
People are the core of the FRC and we are focused on offering a high-
quality employment proposition to all FRC employees. For the FRC to
succeed, it requires a workforce of experts to guide and develop the
evolution of our regulated marketplace.
The past year has seen continuing success in expanding the organisation.
We have grown to 392 employees, which is a 20% increase on our
2021 year-end headcount (326). 314 members of staff were full-time,
57 members of staff were part-time and 21 were employed through
secondment or contract.
Looking ahead to 2022/23, we will continue to grow our organisation
as a highly regarded employee value proposition. As the marketplace
continues to be more candidate-driven, we are focused on ensuring
that we are able to fill the new roles agreed in our annual budget. It is
anticipated we will add 94 new roles to the FRC in 2022/23.
With the easing of lockdown restrictions, we have made a staged return
to office working, with a pilot hybrid working programme allowing our
people to combine the benefits of working from home, along with time in
the office, which allows for collaboration and working together in person
again. We are continuing with a comprehensive internal communications
strategy to ensure that we all remain connected.
A full review of all of our people policies was undertaken in November
2021.
Staff well-being
The FRC continues to prioritise the well-being of our employees. To
supplement our in-house mental health first aiders, we also introduced
a new Employee Assistance provision which has access to GP online
services, online physiotherapy and counselling, and legal advice services
as well as hosting an extensive series of webinars and workshops aimed
at improving the health and well-being of our employees.
“People are
the core of
the FRC”
“continue
to prioritise
the well-being
of our
employees”
Division Numberofadditionalstaffin2021/22
Corporate Services 12
Enforcement 17
Regulatory Standards 16
Supervision 32
UK Endorsement Board 7
Grand Total 84
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 36
A well-managed return to office working has been a focus for our
People Forum this year. After a series of pulse surveys, a pilot programme
started in September 2021 asking full-time employees to work a four-day
fortnight in the office. While this had to pause in December 2021 with
the emergence of the Omicron variant of Covid-19, the pilot restarted in
January 2022.
FRC offers all its employees the opportunity to make regular donations,
tax free, straight from their pay to any UK registered charity by the Payroll
Giving scheme.
Health and safety
At the FRC, we want to provide a healthy and safe working environment
for all our staff and visitors. During the pandemic, we introduced
additional Covid-19 safety measures in the office, including increased
cleaning, online desk and room booking systems, and sanitiser points
across the floor. We provided staff working at home with additional
screens, equipment and ergonomic chairs, and rolled out risk assessments
and awareness training to improve the safety and well-being of staff
when working from home.
We have a dedicated team of fire marshals, first aiders and mental health
first aiders to support the staff and record any incidents.
Per employee, the average working days lost to sickness absence for the
12 months to 31 March 2022 was 3.2 days (2021: 3.1 days).
Talent development
The FRC continues to invest in the development of our employees. Since
the last annual report, over 60 staff (approximately one sixth of the
workforce) have secured places on structured programmes of leadership
and management development. The FRC has also introduced a new
approach to talent management and a new learning curriculum, as well
as an online learning tool to embed a culture of learning and talent
development across the organisation. For the first time, the FRC has been
explicit that employees are empowered to allocate six days per year for
learning and development activities, and more with the agreement of
their manager. The new provisions were announced at an all-employee
town hall and have quickly led to more activity and engagement.
Of 392 employees, 221 are members of professional bodies and 15
employees are working towards professional qualifications.
“introduced a
new approach
to talent
management,
a new learning
curriculum,
... an online
learning tool“
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 37
Staff retention
Despite the changes and demands in the employment market following
the end of pandemic restrictions, attrition remains low for the year, with
a voluntary turnover of 7.2% and involuntary turnover at 2.8%. However,
given the increasingly competitive employment market, this is an area
we are keeping under constant review. We have also had six members of
staff return from maternity/parental leave this year. Internal movements
and promotions have continued to provide an opportunity for our people
to develop their career, and of the 116 vacancies filled in 2021/22, 45 of
them were internal appointments. We also continue to review and adjust
the shape of our organisation as we grow, and during the year
a workforce planning strategy was developed.
The FRC has been subject to the public sector pay pause, presenting
some challenges to our reward proposition. This will be an area of
focus for 2022/23, as we aim to make sure we have a compensation
programme that will ensure we can resource and retain the people
required to make certain the FRC meets its ambitious goals.
Diversity and Inclusion
Diversity and Inclusion (D&I) is a growing strength of the FRC, and during
this year the organisation launched a new three-year strategy for D&I
which requires all staff to have a performance objective on D&I. The
FRC also reported a significant improvement in reducing the gender
pay gap from 27.3 % to 15.9 % (median figure), which equates to a 11.4%
improvement. This continual reduction in our gender pay gap reflects
the increased number of women at all job levels in the organisation.
More broadly on D&I and to reflect the growing profile of D&I across the
organisation, a number of new Diversity Networks and Faith Groups have
emerged, which has resulted in numerous events on the diversity calendar
being celebrated throughout the year.
The FRC is a signatory to the Women in Finance Charter.
“FRC also
reported a
significant
improvement
in reducing
the gender
pay gap“
“a significant
improvement
in reducing
the gender
pay gap from
27.3% to
15.9%“
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 38
Age breakdown
20 No. of staff aged 18–25
159 No. of staff aged 26–40
169 No. of staff aged 41–55
44 No. of staff aged over 55
Gender breakdown
2022 2021
(out of 326)
221 (57%) 186 (57%) No. of female staff
170 (43%) 139 (43%) No. of male staff
0 0 Other gender identity
1 1 Gender not disclosed
Ethnicity breakdown
2021/22 2020/21
236 (60%) 184 (57%) No. of white staff
52 (13%) 35 (11%) No. of Asian staff
24 (6%) 17 (5%) No. of Black staff
16 (4%) 10 (4%) Mixed-race staff
5 (1%) 3 (1%) Other ethnicity
59 (15%) 77 (23%) Preferred not to disclose ethnicity
Diversity data for senior managers (Level 6+) out of 22
12 Female
10 Male
15 No. of white staff
2 No. of Asian staff
0 No. of Black staff
0 Mixed-race staff
0 Other ethnicity
5 Not disclosed
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 38
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 39
Culture
In response to our 2021 People Survey, a review of our Values was
undertaken, as this was one of the few areas identified as a potential area
for improvement. Our values reflect the Regulator’s Code. The review,
undertaken through extensive data collection, including an all-employee
survey, concluded that the majority of our people believed our existing
Values were valid but that the underlying behaviours could be better
defined. In response, September 2021 saw a relaunch of our Values,
with values-based communications and activities being rolled out across
the FRC. During the period of this report, the FRC also launched active
bystander champion training to work towards achieving the aims in
the D&I strategy and creating an open, inclusive and speak-up culture.
Employee engagement
We have a number of active channels to engage with our colleagues,
including monthly town halls, monthly divisional team meetings, and
internal communications activities, such as newsletters and podcasts.
These activities keep staff informed on the FRC Strategy, Plan and Budget,
and any key external issues impacting the organisation or our regulated
community, such as the reform agenda.
The FRC has an extensive network of staff Committees that allow
colleagues the opportunity to engage in issues of interest to them,
including our D&I Committee, our Learning and Development
Committee, and a wide range of peer-to-peer interest groups,
including photography, music and even a knitting circle.
Consultation with colleagues is exercised through our People Forum.
Ruwan Weerasekera was appointed as NED with responsibility for
workforce engagement in 2021 and reports to the Board and People
Committee on employee views and areas of focus. Representatives from
each division from across the FRC meet bimonthly to discuss key people
issues. The agenda is broad but a key topic this year has been our return
to the office and hybrid working.
The 2022 People Survey ran in February 2022 and saw an excellent
response rate of 82%, giving rich data on the current views of staff on a
wide range of issues. The survey was facilitated by an external provider,
Survey Solutions, appointed after a competitive procurement process.
With a response rate of 82% the survey results show a good level of
engagement amongst employees at 70 out of 100.
“We have
a number
of active
channels to
engage with
colleagues“
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 40FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 40
The FRC’s Purpose is to
serve the public interest
by setting high standards
of corporate governance,
reporting and audit and
by holding to account
those responsible
for delivering
them.
Our
Purpose
Our
Values
Independent
Fair
Influential
Effective
Percentage of staff who were
proud to work for the FRC.
Percentage of staff who were aware
of the FRC’s Values and Behaviours.
Percentage of staff who felt
management was considerate
of their life outside work.
20212022
80
%
91
%
89
%
81
%
84
%
90
%
The engagement score using the Civil Service Engagement Index
calculation is 70%, unchanged from the 2021 survey. Out of 80 scaled
questions, over half are considered to be ‘excellent’ or ‘very good’ results,
with 15 ‘lukewarm’ and 4 poor results, thus identifying many strengths
as well as some challenges for the FRC.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 41
10. Section 172 and Stakeholder
Engagement
Section 172 of the Companies Act 2006 (the Act) requires Directors
to consider the interests of stakeholders in their decision-making.
In particular, section 172(1) states that regard should be had to the
long-term consequences of decisions, the interests of the company’s
employees, the need to foster the company’s business relationships
with suppliers, customers and others, the impact of the company’s
operations on the community and the environment, and the desirability
of the company maintaining a reputation for high standards of business
conduct. Our direct stakeholders include companies, institutional
investors, auditors, actuaries, accountants and their respective
professional bodies. Our indirect stakeholders include retail shareholders,
suppliers, employees, customers, communities, pensioners and savers,
and financial institutions, all of whom have an interest in the health
of companies and other organisations within our existing and future
regulatory scope and in the success of the UK corporate sector as
a whole.
The Directors are fully aware of their responsibilities to promote the
success of the company in accordance with section 172. Consideration
of stakeholders’ interests has always been integral to the work of the
FRC and in its decision-making. The FRC’s Stakeholder Engagement and
Corporate Affairs team delivered our highest level of engagement ever
over the last year and increased the reach, engagement and targeting of
our communications and activity, as highlighted in the CEO’s report on
page 16.
Approach to stakeholder engagement
Our approach to strategic engagement focuses on:
• creating a network of advocates;
• soliciting senior level input;
• positioning the FRC as a leader in key debates;
• gathering input into policy-making and consultations;
• driving awareness and engagement with our Codes and best practices;
• ensuring the FRC is a part of relevant decision-making bodies
and groups.
“delivered
our highest
level of
engagement
over the last
year“
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 42
We regularly use a variety of formal and informal engagement channels
to reach our wide range of stakeholders. At the beginning of 2022, we
established the new Stakeholder Insight Group to provide us with a broad
range of perspectives from across the stakeholder ecosystem, replacing
the previous Stakeholder Advisory Panel and Investor Advisory Group with
one quarterly forum for key representatives of all our stakeholder groups.
This year we will continue our work on audit and corporate governance
reform, conducting the appropriate outreach following the Government’s
Response to the consultation on audit and corporate governance reform,
and working towards the future of the FRC and ARGA.
Board consideration of stakeholder matters
The Board and ExCo received regular briefings on stakeholder
engagements, insights and risk and reputation management during
the year. The Board carefully considers the impact of its decisions
on stakeholder groups and the Directors acknowledge that, as an
independent regulator with a public interest remit, its decisions will not
always be supported by all stakeholders. Major policy issues are subject
to consultation and responses are carefully considered to inform decision-
making and complete with due process to consult on matters of public
interest. The Board issues feedback statements following consideration
of consultation responses and these are published on the FRC website.
The Board has a process in place for decision-making, taking account of
the FRC’s strategic objectives, to ensure it has confidence in the decisions
it takes. Board paper templates require that papers on topics which may
affect stakeholders set out the relevant issues and potential impact. The
Board also works to make sure that its decisions are consistent. When
making key decisions the Directors have also had regard to the need to
foster the company’s business relationships with suppliers, customers
and all other stakeholders in our supply chain during the financial year.
Part 4, Section 13.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 43
11. Environmental Impacts
Alongside mandatory Streamlined Energy and Carbon Reporting (SECR)
disclosures, we have made voluntary disclosures aligned with Task
Accounting Standards Board (SASB) recommendations for Professional
Commercial Services companies. This is the first time we have included
disclosures aligned with TCFD and we intend to continue to develop and
strengthen our reporting in this area.
You can find our SASB disclosures on the following pages:
Data handling and data security page 48
Employee engagement page 39
Professional integrity page 49
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 44
The Board has ultimate responsibility for the FRC’s consideration of, and
response to, climate change and other environmental issues. This year
the Board began the process of incorporating climate and sustainability
considerations explicitly into its strategy development, objective setting,
budgeting, risk reviews and business continuity discussions.
As part of its regular high-level risk reviews, the Committee considers
risks and opportunities to the FRC associated with climate change and
sustainability as captured in the overall risk register.
ExCo is responsible for managing climate-related risks and
opportunities. It receives reports from the Risk function, the ESG and
Climate Group and the internal Environmental Impact Group. It takes
decisions on the FRC’s direction, objectives and next steps in limiting its
own environmental impact and in supporting high quality and useful
ESG reporting in the UK. Key decisions are escalated to the Board or
Audit and Risk Committee when necessary.
Risk and control champions across the FRC discuss and evaluate climate
change and sustainability related risks and opportunities at different
operational levels through divisional risk reviews and identification
workshops. This then feeds into the FRC’s risk register which is overseen
by ExCo, the Audit and Risk Committee and ultimately the Board.
This Group acts as an advisory body for ExCo and the Board. It
considers how to serve the public interest by encouraging high quality
reporting, governance, assurance and stewardship of ESG and climate-
related issues in the UK. The Group is sponsored by the Executive
Director for Regulatory Standards and reports quarterly to ExCo. For
more information on the work of this group this year, please see the
Case Study on page 21.
This internal group brings together members of the FRC’s finance,
procurement, governance, policy, HR, IT and facilities teams to identify
practical ways to reduce the FRC’s environmental impact and to build a
use-less, waste-less culture at the FRC. The Group is sponsored by the
Finance Director.
Board
Audit and Risk
Committee
ExCo
Risk
Function
ESG and
Climate Group
FRC
Environmental
Impact Group
Governance
While the Board has ultimate oversight of climate-related matters, every member of our staff
plays their own part in the FRC’s efforts to reduce its environmental impact. Their willingness
to innovate, accept and adapt to new ways of working will be the mainstay in reaching our
continuing ambitions for an increasingly use-less, waste-less culture at the FRC.
The diagram below shows how we are establishing clear lines of leadership and
accountability to identify and manage climate-related risks and opportunities across the FRC.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 45
Strategy
During the year, we introduced a Climate Change Adaption policy and
amended some existing policies to bring environmental considerations
to the forefront of decision-making at all levels in areas such as
procurement, business travel, resources allocation and objective setting.
In July 2021, the ESG and Climate Group produced a Statement of Intent
on six areas of current challenge in ESG reporting which outlined the
FRC’s intended actions within the diverse regulatory framework.
Extract Statement of Intent from the ESG and Climate Group
To work towards a more consistent architecture, we will take
proportionate action within our remit, including developing Codes,
standards, guidance and expectations. We will also work with and
influence standard setters, regulators, market participants and other
stakeholders to build a system that is forward-looking and fit for
purpose. We will work to build expectations for collation and ensure
the development of appropriate standards and controls, delivering
robust internal information which is considered strategically and then
reported externally, where relevant, through high quality disclosure,
in a useable and useful format, leading to better stakeholder and
investment decision-making, all in the public interest. Some of these
actions will be short term and some we will take forward in the longer
term. Not all of them can be delivered simultaneously, and we need
to use our resources carefully, identifying those areas where we can
make the greatest contribution and have the greatest impact.
Risk management
All departments across the FRC undertake regular risk identification
and assessment reviews, supported by risk and control champions. The
assessment of climate and sustainability related risks has been integrated
into the overall risk management process, feeds into the FRC risk register
and is managed within the FRC’s risk management framework.
ARAC assessed climate-related risks and opportunities in the successful
delivery of the FRC’s strategy. It considered staff’s ability to travel and
work during more extreme weather conditions, the deterioration of
physical assets, changes in energy prices and regulation and possible
disruptions to the FRC’s supply chains. It concluded that, at this time,
climate change was not a principal risk to the effective execution of the
FRC’s 2022/25 strategy and that no specific adaptive actions were needed
immediately to mitigate climate-related risks. However, it recognised a
risk that the FRC may be unable to meet stakeholders expectations
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 46
in terms of setting sustainability standards under the existing standard-
setting/regulatory framework. It will remain alert to the future related
risks and opportunities.
Further information on risk management is provided in section 15.
Metrics and targets
The FRC occupies one floor of a multi-tenanted, externally managed
building and as such we are unable to make unilateral changes to the
energy and water systems in the office, which makes it challenging for
us to set attainable quantitative targets for the reduction of our own
electricity, gas and water consumption.
As part of the Greening Government Commitments, we have provided
quarterly data to BEIS on the FRC’s energy, paper, water and single use
plastic consumption, our IT waste generation and business travel. The
Greening Government Commitments set ambitious sustainability targets
for all government departments and agencies. The routine submission
of our consumption and waste data and our membership of the BEIS
Sustainability Forum has been a great catalyst for the Environmental
Impact Group, informing how we can improve the detail and accuracy
of our data, where we can implement tangible change and what we can
learn from other organisations within the BEIS family.
We have provided details of Scope 1 and 2 energy consumption and
emissions in accordance with SECR requirements, alongside metrics on
water usage, sustainable purchasing and business travel. We will review
our emissions footprint and consider the feasibility of reporting Scope 3
emissions for future reporting periods.
Despite an almost three-fold increase in staff numbers since April 2019,
emissions levels from both electricity and gas from the FRC office were
below 2019/20 pre-pandemic levels. While this is pleasing to see, we
acknowledge that these figures exclude emissions from staff that now
work from home for part of their working weeks.
The FRC has made commitments to fund sustainability initiatives within
our control. In partnership with the building’s facilities management, we
are aiming to install 50% LED lighting to the office by the end of 2022/23
(currently the vast majority of lighting is PIR motion sensitive fluorescent).
We will provide food waste segregation bins by September 2022, bring
additional plants into the office and conduct an evaluation of the benefits
of water volume reduction devices in the washroom and kitchen areas.
The FRC will continue to promote our membership of the Cyclescheme to
staff. We also plan to make a further 25% reduction in the number
of plastic stationery items and other single-use plastic (SUP) items
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 47
purchased at the office by April 2023 (2021/22: 7,920 SUP items) having
already made significant reductions in the last three years.
We will maintain ongoing dialogue with the building’s facilities
management and our IT contractor about the changes we wish to see and
seek to identify further feasible and cost-effective initiatives to reduce
the FRC’s carbon emissions and waste, including our end-of-useful-life
IT waste, and to improve the quality of our data, particularly on fugitive
emissions, supply chain emissions and waste disposal outcomes.
2021/22 2020/21 2019/20
Scope 1 consumption (kWh) Natural gas 225,275 233,556 242,469
Vehicle fuels* 0 0 0
Scope 2 consumption (kWh) Purchased electricity 131,225 114,681 160,826
Total energy consumption (KWh) 356,500 348,237 403,295
Scope 1 tCO₂e in ktn** 46 43 45
Scope 2 tCO₂e in ktn 28 27 41
Total carbon emissions (tCO₂e in ktn) 74 70 86
Intensity ratio
(Total carbon emissions consumption
by number of staff at year end) 189 214 354
* The FRC does not operate its own fleet of vehicles.
** Using SECR conversion factors for the applicable year.
Due to the low office occupancy and continuity uncertainty during the ongoing Covid-19
pandemic, no measures were taken to improve the office’s energy efficiency during the year;
however, see above for the measures planned in 2022/23.
2021/22 2020/21 2019/20
Annual Water consumption m
3
1,132 1,340 1,717
Purchased reams of paper (sustainably sourced) 276 0 255
Total km staff business journeys 62,000 0 1,318,000
(excludes commutes to 125 London Wall)***
*** Comprising 47 domestic return rail journeys, 7 long-haul return flights, 3 short-haul return flights, 10 taxi
journeys and 8 grey fleet car journeys.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 48
12. Ethics and Compliance
Data handling
Information and data loss is recognised as one of the FRC’s principal risks
and, as such, is included on the Principal Risk Register. ExCo reviews those
risks, and the controls in place to mitigate those risks, on a quarterly basis,
and reports to the Audit and Risk Committee.
We seek to ensure we have an up-to-date IT architecture in place to
defend the FRC against data security and data loss threats that might
occur when staff are working in the office or at home. During the year,
a range of security reviews was undertaken, including in response to
the heightened threats arising from the Russia/Ukraine conflict. As a
result of the reviews, numerous enhancements were made to antivirus/
malware product configuration settings and patching processes. Enhanced
features relating to threat management and the ability to take action on
discovered threats, were also introduced.
We understand the importance of privacy and maintaining trust and
confidence in our data handling processes. Our General Counsel Team
(GCT) maintains and promotes our privacy and data retention policies and
procedures, and oversees all GDPR and FOIA requests and data handling
compliance. Staff and NEDs receive mandatory training on GDPR, online
security risks and the Freedom of Information Act. Data is held on secure
systems and handled strictly in line with the seven GDPR principles.
Information on our privacy policies can be found at https://www.frc.org
.uk/about-the-frc/procedures-and-policies/privacy-the-frc.
The FRC operates an internal Information Governance Group, who
meet regularly with identified Information Asset Owners to monitor
compliance and to identify areas of concern at an early stage for
escalation to ExCo or the Audit and Risk Committee. The Information
Governance Group has overseen adherence to GDPR principles.
Together with the information asset owners, the FRC has developed
its data and information handling records.
Staff are asked to promptly, and without embarrassment, report any
breach incidents relating to suspected information or asset loss to a
dedicated information risk mailbox, which is jointly operated by IT and
GCT, and to complete a loss form. Necessary actions and mitigations can
then be put in place swiftly and any trends that need to be addressed can
be identified and assessed. All reported incidents are included with the
KPI management system and reviewed by ExCo.
“Information
and data loss
is recognised
as one of
the FRC’s
principal
risks“
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 49
Managing conflicts of interest
All FRC staff and non-executives must comply with the Code of Conduct
and make up-to-date, full disclosures regarding their external interests to
ensure that our work remains free from bias. New staff must disclose their
relevant interests prior to contract. Staff are not permitted to take part
in work relating to an entity they have worked for in the last five years,
unless an exemption request has been viewed and approved by
a member of ExCo.
During the year, the Board revised the Conflicts of Interest Policy to
make the policy clearer, and principle-based. The Board also reviewed
the approach to managing conflicts of interest for NEDs; this included an
amendment to the cooling-off period for NEDs to mirror the time period
for staff.
Bribery policy
UK legislation on bribery applies to the FRC, its staff. The FRC Code of
Conduct, to which staff and members of the governance structure must
adhere, sets out that staff and members must not:
• bribe another person, which includes offering, promising or giving
financial or other advantage; or
• accept a bribe, which includes requesting, agreeing to receive or
accepting financial or other advantage; or
• facilitate or condone an act of bribery.
Whistleblowing
The FRC maintains its own whistleblowing mechanisms and internal
investigation procedures. The FRC’s central complaints function conducts
internal reviews into any external complaints received about the FRC itself
and an Independent Complaints Reviewer may be appointed to review
the FRC’s processes should a complainant have any outstanding concerns.
(See complaints section 51.)
Litigation
During 2021/22, the FRC suffered no monetary losses as a result of legal
proceedings associated with the FRC’s professional integrity, which
would include negligence of duty, malpractice, breach of contract, fraud,
corruption or bribery.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 50
Gifts and hospitality changes
The FRC Board reviewed the Gifts and Hospitality Policy during the year
to ensure the policy remained up to date and in line with best practice.
In accordance with the policy, the Audit and Risk Committee regularly
reviews disclosures, and disclosures made by Board members and ExCo
are published on the FRC website quarterly.
Modern slavery
The FRC issued a Modern Slavery Act statement in November 2020,
demonstrating its commitment to meeting section 54 of the Modern
Slavery Act 2015 (MSA). The statement, which was reviewed and updated
in 2021, outlines activities taken to support its commitment and also
future activities. The FRC does not condone any activity that constitutes
modern slavery or human trafficking under the MSA. Our suppliers (and
supply chain) should maintain the same approach and have policies and
procedures in place to minimise the risk of modern slavery occurring.
Payment practices
The FRC complies with the public sector procurement rules as
stipulated in The Public Contracts Regulations 2015. The FRC’s supplier
relationships seek to deliver successful, sustainable solutions. Existing
and new suppliers must continuously align their approach, processes
and procedures to the core principles relating to minimising risk and
compliance with regulations and legislation. In addition, suppliers
should strive for good practice relating to information security, financial
management and business continuity. It is FRC policy to pay suppliers
when or before payments become due and we endeavour to pay
suppliers within 21 days of the date of invoice.
“The FRC
complies
with the
public sector
procurement
rules“
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 51
13. Managing Complaints to the FRC
The FRC reviews complaints and referrals received from the public in line
with its role in encouraging confidence in the integrity of accountants,
actuaries, auditing and corporate reporting. The majority of the complaints
we receive that are within our remit are reported matters about regulated
activities. A small number of complaints are also received about the FRC.
A number of complaints are outside our remit – these complainants are
directed to the relevant authorities or bodies that may be able to assist.
The FRC has a centralised complaints function to triage complaints and
ensure that they are handled, responded to and resolved appropriately,
promptly and consistently. All policies, processes and procedures are
subject to continuous improvement reviews to ensure that they remain
complainant focused and accessible.
Following receipt, complaints are triaged to determine whether they
fall within our remit, and then referred for consideration to one of the
below teams.
Our published policies and complaints forms include clear guidance on
how complaints will be dealt with, including timelines.
Responsible for reviewing accounts of listed, UK
AIM quoted and large private companies, as well as
limited liability partnerships, to determine whether
they have complied with relevant accounting and
reporting requirements as set out in the Companies
Act 2006.
Responsible for identifying cases that may fall within
the remit of one or more of the FRC’s disciplinary
or enforcement procedures (the AEP in relation to
suspected breach by statutory auditors of Relevant
Requirements; and the Accountancy and Actuarial
Schemes in relation to suspected professional
misconduct by members of the chartered
accountancy and actuarial bodies in public interest
cases) for referral to the FRC’s Conduct Committee
for a decision as to whether to open an investigation
by the Enforcement Division under the applicable
procedure.
Responsible for providing independent oversight of
the professional accountancy and actuarial bodies
and can consider the way a body has handled a
complaint that was made to it.
Corporate
Reporting
Review Team
Case
Examiner
Professional
Oversight Team
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 52
Brought forward as at 1 April (within remit) 16
Incoming complaints 553
Outside remit 470
Closed/resolved complaints (within remit) 81
Carried forward as at 31 March (within remit) 18
The types of all complaints received were:
Complaint nature Number
Conduct or performance of accountant (regulated) 71
Conduct or performance of accountant (unregulated) 103
Conduct or performance of accountant (unknown) 135
Conduct or performance of an auditor 56
Financial reporting 43
Actuarial work 2
Actions of professional body 56
Insolvency Issue 7
FRC 5
Other/unknown 75
Complaints
We received 553 complaints during 2021/22, summarised below.
The handling timescales across all cases closed in the reporting period
were an average of 1.4 working days to send an acknowledgement letter,
and an average of 5.6 working days for the outcome.
Of the 553 complaints received, 83 were referred to the relevant
department within the FRC for further review, with 470 complaints being
outside our remit.
The actions taken in respect of the complaints considered by the FRC
during 2021/22 were as follows.
Corporate Reporting Review Team
The Corporate Reporting Review (CRR) Team received 32 complaints
related to corporate reporting matters during the year, of which 13
related to matters in the accounts, directors’ report or strategic report
that we pursued with the relevant company.
“We
received 553
complaints
during
2021/22“
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 53
• Eight of the 13 were in respect of a wide range of accounting issues,
including several relating to the recognition of provisions and the
disclosure of contingent liabilities, the recognition of revenue, related
party transactions and the accounting for government grants.
– Improvements to future reporting have been made (or agreed) in
two cases.
– One case was closed after we determined that there was no breach
of the relevant reporting requirements.
– Five cases are still in progress.
• Five of the 13 were complaints relating to information that a company
is required to include in its strategic report or directors’ report. The
disclosures related to the requirements to include a section 172(1)
statement, information about stakeholder engagement, SSECR and
the effect of climate change on the company’s business.
– Two companies have agreed to provide the required disclosures
in their next annual report.
– The other three cases are still in progress.
• We are currently analysing 6 of the 32 complaints to determine
whether there is a potential breach of a reporting matter to pursue
with the relevant company. Five of these relate to accounting issues
and the last, to disclosures that should be included in the strategic
report.
• Twelve complaints were not pursued after it was determined from
further analysis that they were either outside scope or that it would
not be proportionate to pursue.
• One complaint was not pursued further because the company was in
administration.
The complaints came from a diverse range of parties (including private
individuals, investors, fund managers and other companies) and have
involved companies ranging from private and small AIM companies to
FTSE 100 groups.
At the beginning of the year, there were seven open cases relating to
complaints about corporate reporting matters received in earlier years.
Improvements to future reporting have been made in three cases. We
required all three companies to refer to our review in their next annual
report and accounts. Two cases were closed after we determined that
there was no breach of the relevant reporting requirements. Consistent
with our usual practice, one complaint was not pursued further after
administrators were appointed to the company and another was not
pursued after the appointment of liquidators.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 54
Case Examiner
Case Examination and Enquiries opened seven complaint cases this year,
one of which was a whistleblowing disclosure.
Five complaint cases were closed during the year, as follows:
• One case, the whistleblowing disclosure, was referred to the Conduct
Committee, which decided that there was insufficient public interest
for the FRC to open an investigation given the entity was not in the
FRC’s remit. The complaint was therefore referred to the relevant
professional body to consider.
• One case, in relation to audit, where constructive engagement was
undertaken with the audit firm.
• Three cases were closed with no further action taken as our enquiries
found there was no basis or insufficient information to support the
complaint.
Professional Oversight Team
This year the Professional Oversight Team received 44 complaints about
the professional accountancy and actuarial bodies that we oversee.
The Professional Oversight Team conducted a full review of the professional
bodies’ complaints handling process in four cases, with two matters
still under review at 31 March 2022. None of the complaints reviewed
raised issues of substantive mishandling and no recommendations for
improvements were made to the bodies in relation to these complaints,
including five complaint reviews that were ongoing at the start of the year.
The remaining 40 matters either fell outside the Professional Oversight
Team’s complaints handling full review remit, or the complainant had not
first exhausted the professional accountancy body’s or actuarial body’s
complaints procedure.
The Professional Oversight Team responded to 83% of complaints within
six weeks.
Further information on complaints received by the Professional Oversight
Team, including trends, can be found in the FRC's report on its oversight
resposibilities 2021/22, due to be published later in the year.
“The Case
Examiner
opened seven
complaint
cases this
year, one of
which was a
whistleblowing
disclosure.“
“The
Professional
Oversight
Team
responded
to 83% of
complaints
within six
weeks.“
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 55
Whistleblowing to the FRC as a prescribed person
Public interest disclosures
Whistleblowing is the term used when an employee passes on information
concerning suspected or known wrongdoing by their employer (also known
as ‘making a disclosure’). The Employment Rights Act 1996, as amended
by the Public Interest Disclosure Act 1998, provides the legal framework for
protecting workers from harm if they blow the whistle. The purpose of a
prescribed person is to provide employees with a way of whistleblowing to
an independent body that may be able to act on those concerns.
The FRC is a prescribed person and individuals working outside the
FRC, but in the accounting, auditing or actuarial professions, may contact
the FRC if they want to make a disclosure about their current or former
employer in relation to matters that are within the scope of the FRC’s
regulatory remit.
During 2021/22 the FRC received 61 disclosures in its capacity as a prescribed
person. In respect of the disclosures made, the following action was taken:
• Fifty-five related to issues not within the remit of the FRC, but the
whistleblowers were signposted to the relevant bodies where appropriate.
• Six were of direct relevance to the FRC’s responsibilities and were
addressed by the relevant teams.
Complaints about the FRC
During 2021/22, five new complaints were received about the FRC. None
raised significant issues of wider concern and were handled under the FRC
Complaints Procedure.
Concerns were raised regarding:
• Dissatisfaction with the FRC’s review of the handling of their complaint
by the relevant professional body.
• Issues with the publication process.
• That a complainant was not updated following a historical complaint.
• Issues with being unsubscribed from a newsletter.
All of the complaints have been reviewed, investigated and responded to.
One complainant exercised their right to have their complaint escalated to
the Independent Complaints Reviewer, which is currently under review.
Additionally, during the course of the year, one historical complaint was
passed to the Independent Complaints Reviewer, which was not upheld
and the FRC was found to have acted in accordance with our processes.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 56
14. Financial Review
*The UKEB influences, endorses and adopts new or amended international accounting
standards issued by the International Accounting Standards Board (IASB) for use by UK
companies. The FRC oversees the UKEB’s adherence to its due process and governance
and has a Service Level Agreement with the UKEB and its secretariat to support. The
UKEB is independent of the FRC in its technical decision-making.
During the year, we managed to operate within our core budget while
recruiting additional staff to deliver our regulatory priorities and continue
the transition to the ARGA.
The FRC Group comprises the FRC and the UK Endorsement Board
(UKEB)*. We set an operational budget of £51.5m for the FRC group in
2021/22, of which £48.5m was for FRC regulatory activities (incl. £5.4m
for case costs) and £3.0m for UKEB. FRC Group operational costs for
2021/22 came in at £45.5m, whereas funding received was at £46.8m.
The £1.3m surplus will be added to reserves to fund future costs, for
specific purposes to be agreed with BEIS.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 57
Revenue/Funding
The FRC Group does not receive direct Government funding. We are
mainly funded by the audit profession through statutory arrangements
and by other groups – the accountancy and actuarial professions, accounts
preparers, insurance companies and pension schemes through non-
statutory arrangements agreed with Government.
Our 2021/22 funding requirement was met in full through our statutory
and non-statutory funding arrangements with relevant groups. The UKEB
Subsidiary was set up in 2020/21, with its funding partly met through a
contribution from FRC reserves, but from 2021/22 and onwards they are
fully funded by Preparers.
Funding by group
Other includes income from publications and electronic rights, and
registration fees from third-country auditors.
£22.8m
Accountancy
Bodies
£18.1m
Accountancy
Bodies
£2.8m
Actuarial
Funding Groups
£2.2m
Actuarial
Funding Groups
£18.3m
Preparers
£15.4m
Preparers
49
%
48
%
6
%
6
%
39
%
41
%
6
%
5
%
£2.9m
Other
£2.3m
Other
2021/2022 Total £46.8m
2020/2021 Total £38m
Funding
£46.8m
(2020/21:
£38.0m)
Expenditure
£45.5m
(2020/21:
£39.6m)
Surplus/
(Deficit)
£1.3m
(2020/21:
-£1.6m)
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 58
Expenditure
FRC Group expenditure for the year shows an increase on prior year of
£5.9m (2020/21: £39.6m). The increase was mainly driven by headcount/
overhead changes while other costs were maintained or decreased
year-on-year.
During the year, we also implemented a new finance system. This will
enable the finance team to adequately cope with the increased demands
resulting from the growth in the organisation.
Staff costs were impacted by the public sector pay freeze partly negating
the overall increase in costs. During the year, we entered a short-term
lease expiring in September 2023 at 1 Victoria Street (home to the
Department for Business, Energy & Industrial Strategy (BEIS)). This is
occupied by the UKEB, and the staff that support it’s activities. The FRC
continues to occupy one floor at 125 London Wall and this lease expires
March 2025.
Case costs of £10.1m (2020/21: £9.2m), were offset by case cost awards of
£7.7m. In all cases, costs awards are paid to the Recognised Supervisory
Bodies (RSBs) who funded the investigation (the relevant RSB).
Expenditure by business activity
Overall
expenditure
for the year
saw a
£5.9m
increase vs
prior year
(+14.9
%
)
Total core
staff costs
£34.7m
(2020/21:
£29.2m)
Other
running costs
(excluding
staff costs)
£10.8m
(2020/21:
£10.4m)
Regulatory Standards
Supervision
Actuarial Standards & Regulation
Enforcement Core
Accounting Case Costs*
UK Endorsement Board
Total
Regulatory Standards
Supervision
Actuarial Standards & Regulation
Enforcement Core
Accounting Case Costs*
UK Endorsement Board
Total
11.7
21.1
2.3
5.1
2.4
2.9
45.5
10.9
18.5
1.8
4.2
2.6
1.6
39.6
Expenditure 2021/22/£m
Expenditure 2020/21/£m
* Case costs may vary quite significantly year-on-year depending on the size and number
of cases concluded.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 59
Reserves
The FRC currently holds £16.2m of reserves which, as set out in previous
Annual Reports, were established to cover enforcement case costs that
are not recovered from audit professional bodies, unforeseen costs
arising from our regulatory activities and the impact of any shortfall in
our revenue, particularly from the voluntary elements of our funding.
As a public body, operating under a remit letter from BEIS, the FRC works
with BEIS to ensure that any use of the reserves is in line with HM Treasury
and Cabinet Office requirements.
Value for money
We have acted in the public interest and attained value for money by
using public resources in a way that creates and maximises public value.
We have managed funds effectively and delivered within budget. Adoption
of hybrid working allowed for cost savings in office rent as we remain
with the same working floor space despite a large headcount increase. We
have followed the appropriate procurement process when engaging with
new suppliers and evaluating current supplier performance, and thereby
negotiating contracts that can provide value for money.
Functional Standards
We have reviewed the newly introduced Government Functional Standards
as applicable. We are comfortable that we are compliant with the relevant
mandatory requirements and will continue to develop adherence as
appropriate.
Reserves
£16.2m
(2020/21:
£14.8m)
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 60
15. Risk Management
Managing risk at the FRC
The FRC has continued to use our Risk Management Framework to ensure the timely
identification, assessment and management of existing and emerging risks. The framework
has recently been refreshed to promote a clear leadership ‘tone from the top’ (see diagram on
page 61), and we continue to embed a positive risk culture and oversee the effective cascade
and escalation of information about internal controls across the organisation.
The Board, supported by the Audit and Risk Committee, monitors key or principal risks, the
risk management and internal control system, and has reviewed its effectiveness this year.
This is reflected in the internal audit opinion that the FRC continues to strengthen its control
environment built around good governance and effective risk management (see pages 102–
103). The risk appetite statement thresholds have been reviewed during the period to identify
what approach will best support delivery of our strategy and plan, and where to focus our
efforts and consider where and whether we should tolerate greater risk.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 61
The Audit and Risk Committee is responsible for monitoring all four divisional risk registers,
requesting deep dive analysis of particular themes or areas of concern, assessing the risk
linkage across the overall organisation, and reporting back to the Board.
Risk considerations are integrated within our strategic budgeting and planning processes to
manage longer-term risks, such as the risk that our regulatory interventions are insufficient to
create improved outcomes for all of our stakeholders, as well as new or emerging risks.
Given the continuing importance of climate change both to the remit of the FRC as well as a
risk consideration, our initial assessment of the associated climate risks suggests FRC is not
materially exposed to climate change itself or that this represents a threat to our long-term
viability, liquidity or ability to operate; however, it is a key strategic priority for the FRC to lead
on with external stakeholders with particular regard to auditing and reporting.
Determines FRC’s overall strategy, management and culture;
determines the nature and extent of the significant risks to
be taken in achieving the FRC’s strategic objectives (risk
appetite); reviews reports on principal risks
Supports and advises the Accounting Officer and
Board in oversight of risk management; monitors the
risk management and internal control system, and
reviews its effectiveness
Sets ‘tone from the top’, establishes a positive
risk culture, conducts deep dives into principal
risks, cascades risk and control information
Providing independent assurance
on the risk management process
Timely and accurate reporting and
escalation of risk and control
information; building risk capability;
providing assurance on risk
management activity
Timely identification, assessment
and management of existing
and emerging risks to
achievement of strategic
objectives
Board
Audit
and Risk
Committee
Executive
Committee
Third line of defence
(the internal auditors)
Second line of defence
(the Corporate Risk Management team)
First Line of defence
Our risk management framework
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 62
Over the past year, we have continued to enhance and improve our risk management
framework to identify and manage risks that may prevent us from delivering our strategy
or serving the public interest, as well as rolling out an educational and communications
programme for staff to enhance their understanding of how the risk framework operates,
and the importance of their role in this. The Government’s Orange Book: Management of
Principles and Concepts sets out the principles by which we work:
Governance
and Leadership
Integration
Collaboration
and Best
Information
Risk
Management
Processes
Continual
Improvement
• ExCo and the Audit and Risk Committee have set a medium-term risk
maturity target of ‘defined’, i.e. that risk and control management is
applied consistently throughout the organisation and a robust
delivery plan is in place.
• Continued regular risk reviews at the Audit and Risk Committee and
periodic deep dives, sponsored by Executive Directors, to consider
current and emerging risks, and whether they are significant and
should be included in our principal risks.
• Conducted risk identification sessions with ExCo and the teams to
identify emerging threats and ensure that risks remain relevant and
managed at the appropriate level. This has helped us to close 14 risks
and identify 3 new risks over the course of the year.
• Introduced Risk and Control Champions and quarterly network
meetings to further support and embed risk at team levels.
• Tested principal risks and developed a policy roadmap to assure the
effectiveness of our internal control environment.
• Increased the quality of risk reporting data and analysis, including
developing control KPIs and key risk indicators, to better evaluate the
impact of our actions and enable more agile risk management strategies.
• Monitored climate-related risks identified through the existing risk
management framework and develop mitigations to respond.
• Strengthened business continuity plans, conducting exercises to test
our responses to managing such incidents.
• A follow-up audit to GIAA’s 2020/21 internal audit of the risk
management framework found that the FRC has made good progress
in embedding a culture of risk management and assurance at
operational levels.
• Developed updated training to build upon the skills, knowledge and
tools available to staff and budget holders to manage risk in line with
FRC’s risk appetite and Managing Public Money.
• Launched a series of podcasts to embed and continue to build risk
management capability and risk-aware culture within the business.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 63
Likelihood
Very unlikely Unlikely Possible Likely Very likely
1
4 5
2
6
3
7
Risk appetite
We want to take calculated and proportionate risks that enable us to deliver our key priorities
in an appropriate manner.
The Board, Audit and Risk Committee, and ExCo periodically review our risk appetite to
ensure that the assumptions, and the range of appetites are still valid. The aim is to consider
whether our risk appetite is adequately tailored and proportionate to our organisation, in
light of major trends, our strategy, the current internal and external environment, and our
transition to ARGA.
Our appetite for risk varies depending on the size and level of risk, our policy remits and the
positive outcomes we are seeking.
Current principal risks at 31 March 2022
No
Risk
title
Regulatory
reform
Risk summary
and time horizon
Due to political and
other pressures,
regulatory reforms are
delayed or ineffective
(medium-term)
Risk
appetite
We are willing to tackle
very difficult change
projects that pose
medium to high risk
if the resulting benefits
justify this.
Position against
appetite
Within appetite
Impact
Very high
High
Medium
Low
Very low
1
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 64
No
Risk
title
Driving
outcomes
Reporting
and audit
quality
Audit
market
disruption
Data privacy
/confidenti-
ality
Risk summary
and time horizon
Codes, standards,
guidance, supervision
and enforcement fail
to drive the necessary
behaviours and
outcomes
(long-term)
Corporate reporting
and audit quality
remains inconsistent
(long-term)
Audit market is severely
disrupted by failure of a
major audit firm or
partial withdrawal from
the market
(short-term)
Failure to maintain data
privacy/confidentiality
(short-term)
Risk
appetite
We aim to make a
significant contribution
to the UK with our policy
design, supervision and
enforcement, and we are
comfortable in accepting
medium to high risks
providing they are fully
understood.
We are willing to accept
medium risk by taking
policy positions in
pursuit of our mission
that are independent
of Government and that
might be challenged,
provided that those
positions are evidence
based and aligned with
our published strategy.
We are willing to take
on high risk to capitalise
on potential policy
opportunities where
appropriate.
We have a very low
to low appetite for
information risk, as the
deliberate or accidental
disclosure of sensitive
information has the
potential to harm FRC’s
reputation and prevent
us from being able to
function.
Position against
appetite
Within appetite
Tolerated
Within appetite
Tolerated
2
3
4
5
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 65
No
Risk
title
Using
information
Government
support for
obligations
Risk summary
and time horizon
Ineffective information
flows and lack of a
holistic overview
(short-term)
We do not receive
timely decisions or
practical support
from government in
meeting our governance
obligations
(short-term)
Risk appetite
definitions:
Very low – Avoidance of risk and
uncertainty is a key objective.
Low – Preference for ultra-safe options
that are low risk and only have a potential
for limited reward.
Medium – Preference for safe options
with little risk and reasonable rewards.
High – Willing to consider all potential
options (including higher levels of risk)
and choose the one most likely to result in
successful delivery and increased rewards.
Very high – Eager to be innovative and
choose activities offering potentially very
high rewards, even if these activities carry
a very high inherent risk.
Risk appetite
definitions:
Within appetite –
The right people and
processes in place are in
place to manage the risk.
Tolerated –
The risk is being
tolerated and subject
to active monitoring.
Outside appetite –
Risk is of immediate
concern and subject to
continuous oversight.
Time horizon
definitions:
This is the period
within which
the risk could
potentially
materialise.
Short-term:
Within one year.
Medium-term:
One year to five
years.
Long-term:
Over five years.
Risk
appetite
We have a low to
medium appetite for
process failures, in the
interests of balancing
process effectiveness
with innovation and
responsiveness.
We have a very low
to medium appetite
for ineffective decision
making. Failure to
meet our governance
obligations can impact
our reputation.
Position against
appetite
Outside appetite
Outside appetite
6
7
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 66
The detailed principal risks are set out below, mapped against the FRC’s objectives:
Objective
Principal risk
and owner
1. Due to political
and other pressures,
regulatory reforms
are delayed or
ineffective so fail
to improve public
confidence in the
regulatory regime
and the FRC/ARGA.
(Owner: Director
of Strategy and
Change)
Top three
mitigations
• We have created a
programme plan that
provides for policy work
with Government (at a
pace outside our control)
simultaneous with
progressing all non-
legislative actions within
our control.
• We have ensured strong
FRC representation on joint
programme governance
forums with BEIS.
• We have delivered a broad
and balanced stakeholder
outreach and engagement
programme on the topic of
reform.
Trend
This risk has remained
static this year due to
the lack of legislative
certainty. We have
by necessity relied
on a set of high-
level assumptions on
Government’s plans
to legislate, and the
timing and scope of
implementation. Many
of these factors are
however, outside our
direct control. We are
maintaining constant
progress in delivering
improvements to our
existing regulatory
functions and to embed
reforms in so far as it is
possible to do so without
new statutory powers.
Set high standards in corporate governance and stewardship, corporate reporting,
auditing, and actuarial work and assess the effectiveness of the application of
those standards, enforcing them proportionately where it is in the public interest.
Promote improvements and innovation in the areas for which we are responsible,
exploring good practice with a wide range of stakeholders.
Influence international standards and share best practice through membership of
a range of global and regional bodies, and incorporate appropriate standards into
the UK regulatory framework.
Create a more resilient audit market through greater competition and choice.
Transform the organisation into a new, high performing, robust and independent
regulator, acting in the public interest.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 67
Objective
Principal risk
and owner
2. Our codes,
standards, guidance,
supervision and
enforcement fail to
drive the necessary
behaviours and
outcomes to deliver
consistently high
standards.
(Owners:
Executive Director
of Regulatory
Standards,
Executive Director
of Supervision,
Executive Director
of Enforcement and
Executive Counsel)
Top three
mitigations
• We have issued revised
standards. These cover
auditors’ and audit firms’
responsibilities in respect
of fraud, audit quality
management and group
audits, and they draw on our
supervision and enforcement
work. We have continued
to actively engage with
international standard setting
Boards to consider UK
stakeholder needs.
• We have issued tailored
feedback to all applicants
to the Stewardship Code.
We publicly report on our
expectations when an entity
applies to be a signatory.
• We have continued to
strengthen our stakeholder
engagement. We have
developed a new stakeholder
insight group, and publicly
consulted on any changes
to or development of new
Codes, Standards and
Guidance.
Trend
The risk has remained
static this year as
the impact of these
mitigations is over the
longer term, with some
notable exceptions
such as ESG reporting.
Work has begun
on establishing key
indicators to monitor
this risk and to monitor
the effectiveness of its
mitigations.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 68
Objective
Principal risk
and owner
3. Corporate
reporting and audit
quality remains
inconsistent,
resulting in reduced
investor/stakeholder
confidence and
reputational damage
to the FRC.
(Owner: Executive
Director of
Supervision)
Top three
mitigations
• We are increasing the
intensity of our forward-
looking supervision of major
audit firms, including through
the work of our AQR and
CRR teams. We are taking
over decision making on
registration of PIE audit
firms and auditors, and
implementation of ISQM1.
• We refer failures in standards
for Enforcement action as
appropriate. We are creating
a joined-up regulatory
approach across standard
setting, supervision and
enforcement priorities.
• We have a supervisory
focus on audit firm culture,
including the operational
separation of audit practice
from rest of firm, and the
creation of audit boards.
Trend
Early indications from
AQR results this year are
that audit quality at the
major firms is improving
further. We are now
starting to see a trend
of improving audit
quality and we expect
this to continue over the
next two to three years.
Companies continue to
respond constructively
to CRR’s interventions,
demonstrating
willingness to improve
the quality of their
corporate reporting and
meet expectations of
better practice.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 69
Objective
Principal risk
and owner
4. Audit market is
severely disrupted by
failure of, or partial
withdrawal from
a segment of the
market by, a major
audit firm.
(Owner: Executive
Director of
Supervision)
5. Failure
to maintain
data privacy/
confidentiality, due
to (un)intentional
(ex)internal release
of data, including
through cyber-
attack, results in loss
of sensitive data
(personal/corporate),
breach of law/
regulation, fines and
reputational damage
to FRC.
(Owner: Executive
Director of Corporate
Services and General
Counsel)
Top three
mitigations
• The 2021 BEIS Consultation
Document proposed a
managed shared audit regime
to reduce the market share of
the Big Four in the FTSE 350,
and proposed requirements
to safeguard the resilience of
major audit firms.
• We are supervising
enhancements to recovery
plans for major audit firms.
We are increasing supervision
of all PIE audit firms to
identify areas of poor audit
quality and to hold them
accountable for remediation.
• PIE auditor registration could
potentially be used to set
resilience requirements on
audit firms.
• We have refreshed our
security tools and renewed
our cyber essentials plus
certification. We collaborate
with the BEIS security team.
• The newly appointed external
data protection officer (DPO)
has approved our policies
and procedures.
• Our reporting and timely
resolution of incidents
has been enhanced, and
we regularly review and
report on our information
management to ExCo and
the Audit and Risk
Committee.
Trend
We are working closely
with major audit firms
across all sectors of
the audit market to
oversee their resilience.
This is a relatively new
and ongoing process.
In particular, we are
working on any risk of
withdrawal of a firm
from a sector of the
market.
We are getting more
assurance over this
risk from activities
such as employee
training, monitoring
of risk of information
loss, and assessing the
FRC’s accountability
for receipt, usage
and retention of
information.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 70
Objective
Principal risk
and owner
6. As a result of
limited information
sharing and
lack of a holistic
overview, we fail to
proactively exploit
data/information
which reduces
organisational
effectiveness
with potential
reputational
damage.
(Owner: Executive
Director of Corporate
Services and General
Counsel)
7. We do not receive
timely decisions or
practical support
from government
in meeting our
governance
obligations, or
are subject to
constraints on
our operations,
limiting our ability
to discharge our
regulatory duties
effectively with
reputational
damage.
(Owner: Chief
Executive Officer and
Accounting Officer)
Top three
mitigations
• We have refreshed our
information asset register,
appointed a new external
DPO, had an external
information management
review and appointed a Chief
Information and Technology
Officer
• We have increased our
investigation and adoption
of data analytics.
• We have refreshed our
communications and
stakeholder messaging.
• We internally and externally
escalate key decisions on
bottlenecks relating to FRC’s
dependencies on BEIS.
• We are adapting our internal
rules and processes to ensure
we can still operate.
Trend
We commissioned an
external review into
our information needs
and initial steps have
been taken towards
implementation of its
recommendations.
These include recruiting
a CITO, updating our
information asset
records, developing
an information
management strategy
and continuing to
enhance our internal
data analytics and
intelligence capabilities.
A permanent Chair and
new NEDs have now
been appointed. This
provides a sustainable
board membership,
and enables the
implementation of the
refreshed governance
framework.
Governance
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 72
16. Governance and Transparency
I am pleased to present our corporate governance review for
2021/22 as the recently appointed Chair of the FRC. As I noted in
my Statement on page 10, BEIS had spent some time to recruit a
permanent Chair and NEDs for the FRC. Now that we have a full
Board, the governance of the organisation is in a better place and
I look forward to ensuring its effectiveness during my tenure.
This report sets out our approach to governance in practice and the work
of the Board and its committees in this area.
The FRC is a central government body and a private company limited by
guarantee. It reports to the Secretary of State for BEIS and Parliament on
the discharge of its functions. The Secretary of State for BEIS appoints
the Chair and NEDs to the FRC Board, which is responsible for the FRC’s
strategy and monitoring its implementation.
The Chief Executive, as the Accounting Officer, is personally responsible
for safeguarding the public funds under his control, for ensuring propriety
and value for money in the handling of those public funds, and for the
day-to-day operation and management of the FRC. The Chief Executive
has a responsibility to the Permanent Secretary of BEIS as the Principal
Accounting Office for all public bodies in the BEIS family and delegates
powers directly to the Chief Executive through a Framework Agreement.
How we are governed
The FRC is headed by a Board that has responsibility for establishing
values, culture and strategy, and ensures the necessary resources are
in place for the business to meet its strategic objectives. The Board
provides strategic leadership and is also responsible for the organisation’s
risk strategy and risk appetite. Decisions relating to open enforcement
investigations are taken by Executive Counsel, but the Board received
regular updates on the progression of enforcement investigations.
The roles of the Chair and the Chief Executive are held separately, ensuring
a clear separation of responsibilities. The Chair leads the Board and
ensures its effectiveness, and the Chief Executive is responsible for the
executive management and performance of the FRC’s operations. The
Senior Independent Director provides a sounding board for the Chair
and serves as an intermediary for the other directors.
ExCo, led by the Chief Executive, is responsible for managing the
operations of the FRC in accordance with the Framework Agreement
agreed with BEIS.
Sir Jan du Plessis
Chair
Sir Jan
du Plessis
Chair
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 73
Governance diagram
The Board discharges some of its responsibilities directly and others
through its two governance committees and three regulatory committees.
The three regulatory committees are supported by Senior Advisors and
the Advisory Panel to provide input on a range of matters. The Governance
Handbook sets out a schedule of matters reserved to the Board and terms
of reference for the committees. The Handbook and biographies for all
members of the governance structure can be found at www.frc.org.uk.
The governance framework of the FRC as set out below is aligned to the
UK Corporate Governance Code.
FRC Board
Regulatory
Standards &
Codes Committee
Role: regulatory
standards and
codes functions
Supervision
Committee
Role: supervisory
and monitoring
functions
Executive
Committee
Role: manages
day-to-day
operations –
resources, policies
and programmes
Non-executiveAdvisoryPanel
A pool of subject specialists
to be called on by the
Executive/Committees
Conduct
Committee
Role: enquiries,
investigations
and enforcement
functions
PeopleCommittee
Role: remuneration,
succession
planning and talent
management
Audit & Risk
Committee
Role: oversight of
financial reporting,
internal audit and
risk control functions
Enforcement
Committee
Panel
(arms length)
TribunalPanel
(arms length)
Senior Advisors
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 74
Governance statement
As the body responsible for the UK Corporate Governance Code
(the ‘Code’), we seek to apply the principles of the Code as far as is
possible and appropriate for a central government body that is also
a private company limited by guarantee. The FRC has embraced the
flexibility of the ‘comply or explain’ principle and reflected on company
circumstances. Due to our unique status, we also apply Corporate
Governance in Central Government Departments: Code of Good Practice
as far as is appropriate given that the FRC is not a government
department.
Our Board members comply with the Nolan Principles of Public Life and
the organisation is compliant with Managing Public Money. As a company,
the FRC conforms to the requirements of the Companies Act 2006. The
FRC is also compliant with the Alexander Tax Review and the MacPherson
Review of Quality Assurance of Government Analytical Models.
Statement of compliance
This Governance statement, taken together with the Strategic Report and
Directors Report, demonstrates our compliance with the Code and Code
of Good Practice.
2021/22 was a period of transition for the FRC’s governance. The table
below explains where the FRC temporarily departed from the principles
or provisions of the Code or the Code of Good Practice during the year
and what actions were taken to mitigate some of the impact of
those departures.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 74
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 75
1. Board leadership and company purpose
A. Effective and entrepreneurial Board Pages 80–99
B. Purpose, value and strategy Page 99
C. Resources and controls Pages 97–99
D. Engagement with stakeholders Pages 41–42
E. Workforce policies and practices Pages 109–110
2. Division of responsibilities
F. Role of the Chair Pages 95–96 with specific departure explained on pages 77–78
G. Board membership Page 92 with specific departure explained on pages 77–78
H. Role of the NED
Pages 92–96 with specific departures explained on page 77
I. Board information, time and resource Pages 92–96
3. Composition, succession and evaluation
J. Appointment to the Board Page 92 with specific departure explained on page 78
K. Board composition Page 92 with specific departure explained on page 78
L. Board evaluation Pages 94–95 with specific departure explained on page 78
4. Audit, risk and internal control
M. Internal and external audit functions Pages 98–99
N. Fair, balanced and understandable Page 129
O. Risk management Pages 60-70 and 101–102
5. Remuneration
P. Aligning remuneration to strategy
Pages 108–110 with specific departure explained on page 79
R. Independent judgement Pages 108–110 with specific departure explained on page 79
Q. Policy for executive remuneration
Pages 108–110 with specific departure explained on page 79
UK Corporate Governance Code and the Corporate Governance Code for
Central Government Departments: Code of Good Practice
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 76
1. Parliamentary accountability
1.1 Ministerial responsibility to Parliament Page 72
1.2 Accounting Officer responsibility Page 72
2. Role of the Board
2.1 Board leadership Pages 72–73
3. Board composition
3.1 Skills, experience and diversity Pages 85–89
4. Board effectiveness
4.1 Roles and responsibilities Pages 72–73
4.2 Effective discharge of its responsibilities Pages 95–99
5. Risk management
5.1 Effective arrangements Pages 60–70 and 101–103
6. Arm’s length bodies
6.1 Ensuring robust governance arrangements Pages 72–95
6.2 Governance statement Pages 74–79
6.2 Terms of relationship with the sponsoring department Page 72
Corporate Governance in Central Government Departments:
Code of Good Practice
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 77
UK Corporate Governance Code: Division of responsibilities
Principle F: The Chair leads the Board and is responsible for its overall effectiveness in
directing the company. The FRC was without a Chair from October 2020 to January 2022.
During this period the Senior Independent Director chaired Board meetings, met regularly
with key members of the Executive and attended key meetings with stakeholders.
Principle G and Provision 12: The Board should include an appropriate combination
of executive and non-executive directors such that no one individual or small group
of individuals dominates the Board’s decision making. There were a number of changes
to the membership of the Board during the year and for a short period the membership of
the Board comprised three NEDs and the CEO. During that period, temporary amendments
to Committee terms of reference were introduced to allow an executive member of the
Board to chair Committee meetings in a non-voting capacity and the terms of office of
the co-opted members on the Conduct and Supervision Committees were extended to
the end of the financial year. The membership of the advisory panel was also expanded to
ensure the executive had access to independent expert advice. At the time of writing, the
membership had increased to eight NEDs, with a further recruitment exercise planned for
the second half of 2022. John Coomber was appointed as the Senior Independent Director
during the year; in this role he supported the Chair and acted as an intermediary for other
non-executive directors.
Provision 19: The Chair should not remain in post beyond nine years from the date
of their first appointment to the Board. Keith Skeoch stepped down in October 2021,
which brought his total tenure with FRC to nine years and four months. BEIS extended his
tenure over nine years due to his level of experience, corporate memory and especially the
continuity he brought to the FRC in anticipation that a new Chair would be appointed once
he stepped down.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 78
UK Corporate Governance Code: Division of responsibilities
Corporate governance in central government departments: code of good practice
Principle 3.3: The Board should be balanced, with approximately equal numbers
of ministers, senior officials and non-executive board members. As the FRC is not a
government department, some of the principles, for example that the composition of the
Board should include the department minister and permanent secretary, are not applicable.
Principle J and Principle 4.1: Appointments to the Board should be subject to a
formal, rigorous and transparent procedure.
Principle K and Principle 3.1: The Board and its committees should have a
combination of skills, experience and knowledge.
Appointments to the FRC Board are made by the Secretary of State in accordance with
the Public Appointments Process, which is not within the FRC’s control. However, the FRC
is able to input to the person specification and a member of the FRC Board sits on the
recruitment panel to seek to ensure due consideration to the skills and experience
required by the FRC Board.
Principle L, Provisions 21 and 22, and Principle 4.1: Annual evaluation of the Board.
The Board took the decision to defer the 2021/22 effectiveness review because of the
delays in the recruitment of a permanent Chair and NEDs. Elements of the new governance
structure were implemented on 1 January 2021, including the introduction of an Advisory
Panel and Senior Advisors. An evaluation of the Panel and Senior Advisor model was
undertaken during the year and the results are reported on page 95. In early 2023, the
Board will reflect on the working of the Board and its committees, and how the Board
can be more effective, with a full and formal external review scheduled for 2023/24.
The early 2023 review will include consideration of how the new members of the Board
and committees are working together and the effectiveness of the overall new
governance structure.
Provision 18: Annual re-election of directors. Directors are not subject to annual
re-election. Ordinarily the effectiveness of directors would be considered on an annual
basis; however, as all but one of the NEDs were appointed during the year, it was not
appropriate to undertake this review. The terms of appointment are set by the Secretary
of State and short-term extension of terms were made by BEIS taking into account the
changes resulting from the Kingman recommendations, the importance of maintaining
BAU and the ongoing NED recruitment exercise.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 79
UK Corporate Governance Code: Audit, risk and internal control
Provisions 30 and 31: Assessment of the company’s position and prospects. The Board
supported the view that a viability statement would not be included, and the financial
statements should continue to be prepared on going concern basis of accounting. The
financial statements confirm that it is appropriate to adopt the going concern basis of
accounting and a 3-Year Plan (2022/25) was approved by the Board on 31 March 2022.
In addition, as a Central Government Body under the sponsorship of BEIS, the FRC receives
a ‘Letter of Comfort’ from BEIS which provides an assurance of financial support.
UK Corporate Governance Code: Remuneration
Principles P, Q and R, and Provisions 32 to 38: Remuneration policies and practices
of directors. As a Central Government Body, the FRC follows Public Sector Pay Guidelines
and there is greater oversight from BEIS, HM Treasury and the Cabinet Office in relation
to remuneration decisions across the organisation. With limited ability to determine
remuneration for the executive, the organisation has a People Committee that is responsible
for agreeing submissions/proposals to BEIS regarding staff pay awards and advising the
Secretary of State on the proposed fees for Directors. These proposals are considered by
benchmarking the organisation against similarly paid professionals within the sector and
NEDs at equivalent organisations.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 80
Sir Jonathan Thompson
Chief Executive Officer
and Accounting Officer
Appointed October 2019
Role
Sir Jon is CEO and Accounting Officer. He
leads the Executive team and is responsible
for implementation of the agreed strategy.
As Accounting Officer, he ensures
the FRC is run in accordance with the
Framework Agreement agreed with BEIS,
the requirements of the Managing Public
Money principles, as well as any additional
instructions and guidance issued from
time to time by BEIS, HM Treasury and the
Cabinet Office, while maintaining the FRC’s
position as an independent regulator.
Experience
Sir Jon brings experience of working with
government bodies and has enjoyed a
lengthy career in finance. Prior to joining
the FRC, Jon was the CEO of HMRC, and
previously Permanent Secretary of the
Ministry of Defence. He has extensive
experience of delivering change and
programme management, as well as
deep experience of finance and corporate
governance as a former Head of the
Government Finance Function and the
CFO of four organisations.
Mark Babington
Executive Director,
Regulatory Standards
Appointed July 2020
Role
Mark is the Executive Director of
Regulatory Standards at the FRC. He leads
the division responsible for the FRC’s
technical and public policy work covering
audit, corporate reporting, corporate
governance and stewardship, actuarial and
the FRC Lab. The division also includes
the FRC’s Stakeholder Engagement work.
Prior to joining ExCo, Mark led the FRC’s
UK Audit Policy programme, measures
to support greater competition in the UK
audit market and work to support the
reform of international standard setting for
auditors by global regulatory authorities.
Experience
Before joining the FRC, Mark had a
twenty-year career in audit and was a
Director at the UK National Audit Office.
Mark is an Independent Governor, Board
Member and Chair of the Audit and Risk
Committee of the Westminster Foundation
for Democracy, which is the UK public
body dedicated to supporting democracy
around the world. He is also a member of
the International Ethics Standards Board for
Accountants, which sets the global Code of
Ethics for the accountancy profession.
17. Our Executive Committee (ExCo)
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 81
Elizabeth Barrett
Executive Counsel and
Executive Director of Enforcement
Appointed August 2018
Role
Elizabeth leads the FRC’s Enforcement
Division and is responsible for decisions
in relation to enforcement proceedings
involving auditors, accountants and
actuaries. Elizabeth also chairs the
Enforcement Section of the International
Forum of Independent Audit Regulators
(IFIAR).
Experience
Elizabeth spent 30 years at Slaughter and
May, including 27 years as a partner, and
was Head of the firm’s Dispute Resolution
Group between 2004 and 2008. Her
practice spanned a broad range of complex
litigation and contentious regulatory
matters in the commercial and financial
sectors covering both private and
public law.
Miranda Craig
Director of Strategy & Change
Appointed April 2021
Role
Miranda leads the FRC’s transformation
programme, bringing together and
implementing the FRC’s ambitious audit,
governance and reporting reforms. Her role
also encompasses developing the FRC’s
strategy and improving the FRC’s project
delivery capability via the establishment of
a new Project Management Office.
Experience
Miranda is a Fellow of the Chartered
Governance Institute with 17 years’
experience across professional services,
large private and listed companies, having
qualified whilst at Ernst & Young. She
has also held senior secretariat roles at
Sage Group plc, ARM, R&Q and EDF
Energy. Miranda spent 2019 seconded to
BEIS leading on the Independent Review
into the Quality and Effectiveness of
Audit, supporting Sir Donald Brydon’s
comprehensive review of audit; its purpose,
user needs and future direction.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 82
Kate O’Neill
Director of Stakeholder Engagement
& Corporate Affairs
Appointed April 2021
Role
Kate leads the Stakeholder Engagement
and Corporate Affairs function with
responsibility for delivering a coordinated
international engagement programme
for all stakeholders ecosystem across
the whole of the FRC’s remit. She is also
responsible for marketing and brand,
employee and change communications,
media relations, digital communications
and public affairs.
Experience
Previously, Kate was the Head of
Corporate Development at Jupiter Asset
Management where she was responsible
for corporate strategy, investor relations
and communications. She was the
Managing Director of Investor Relations
at Lloyds Banking Group during the
financial crisis before becoming a Partner
at Brunswick and then at Maitland, advising
global clients on capital markets and
communications issues. After qualifying
as a lawyer, Kate spent most of her career
in the financial services sector in the UK,
Europe and Australasia in senior leadership
roles in distribution and alternative assets
at AMP Asset Management, Henderson
Global Investors and RBS Asset
Management.
Alex Kuczynski
General Counsel and Executive
Director of Corporate Services
Appointed September 2020
Role
Alex is Executive Director of the Corporate
Services Division and General Counsel.
The Division comprises the General
Counsel’s Team, Finance (also including
risk, procurement, and facilities), Human
Resources, Information Technology, and
Economics, Strategy & Analytics. The role
is oversees the professional and support
services for the FRC. Its effectiveness is
critical to the transformation programme
to the new regulator.
Experience
Alex joined the FRC in September
2020, prior to which he was the Chief
Corporate Affairs Officer, and an Executive
Board Director, at the Financial Services
Compensation Scheme. (FSCS). As a lawyer,
Alex was firstly head of legal at FSCS, but
in various roles over 20 years worked on
a wide range of financial services issues,
particularly those concerned with actual
or potential consumer detriment, across
investment business, insurance and
banking, and often collaborating closely
with Government, regulators and
industry stakeholders.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 83
Sarah Rapson
Executive Director of Supervision
Appointed September 2021
Role
Sarah is responsible for leading the
FRC’s Supervision Division and its work
to enhance audit quality, both through
standard setting and audit monitoring
of firms; supervisory oversight of the
Recognised Professional Bodies; and
to promote improvement in corporate
reporting though detailed technical reviews
of companies’ annual report and accounts.
Experience
From 2016–21, Sarah was the Director of
Authorisations at the Financial Conduct
Authority. From 2013–16, Sarah was a
member of the Home Office Board, as
the first Director General of UK Visas and
Immigration – responsible for overseas
visas, in-country immigration, and asylum.
Sarah was Chief Executive of the Identity
and Passport Service (now HM Passport
Office) from 2010–13, and in 2010 was also
appointed by Her Majesty the Queen as
the 20th Registrar General for England and
Wales, responsible for Civil Registration, a
post she held until 2014. Prior to this, Sarah
worked in Retail Financial Services and has
an MBA from London Business School.
She is currently the Senior Independent
Director of North Middlesex University
Hospital Trust and, from December 2021,
also a NED of the Royal Free London NHS
Foundation Trust.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 84
Strategy, including the development of the Strategy, Plan and Budget and
identification of objectives. ExCo also monitored progress against the agreed
objectives and reviewed the presentation of the data to the Board.
Operational matters, including routine reports from the FD on the
management accounts, procurement and reports from Corporate Services
teams on IT (including cybersecurity) and office management matters.
Risks and internal controls, in addition to routine risk reports, ExCo engaged
in deep dives on the FRC’s principal risks and considered the effectiveness of
the FRC’s internal control and risk management framework.
People matters, including key people related policies, FRC culture, including
a refresh of the values and behaviours, return to work arrangements following
the pandemic and HR dashboard data.
Stakeholder engagement, including updates on implementation of the new
stakeholder engagement approach, approval of a new communications planner
and consideration of feedback on key stakeholder matters and responses to
FRC publications. ExCo also focused time on internal communications and
messaging.
Policy matters, including both internal and external policy approaches.
Research ExCo approved and monitored progress against the 2021/22
research programme.
Key areas of focus by the Executive Committee during the year
During the year the Committee’s focus was on the following areas:
ExCo also spent considerable time considering its own role and responsibilities, including
its position in the governance structure. Detail on matters considered by ExCo as part of the
formal governance approvals process are included in the table on page 97.
A separate Transformation Board was established to discuss the Transformation Project on
Government reform in audit and corporate governance. In addition to matters considered
at formal management meetings, ExCo received Board meeting agendas and reports, and
considered and commented on the papers prior to issue.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 85
Chair
Appointed February 2022
Experience
Sir Jan has served as Chair of
several public companies that
operate across a variety of
business sectors over the last 18
years which include BT Group
plc, Rio Tinto plc, SABMiller plc,
RHM plc and British American
Tobacco plc. These roles have
given him extensive experience
in leadership and governance.
He has also had multiple
interactions with the institutional
investment community and
gained meaningful insight into
the challenges facing the audit
services sector. He has also served
as NED of Marks and Spencer
Group plc and Lloyds Banking
Group plc. Before becoming a
public company Chair, Sir Jan
was Chief Financial Officer of
Richemont, the Swiss luxury
goods group.
Sir Jan was knighted in the 2022
New Year’s Honours List for
services to Telecommunications
and Business.
External appointments
Sir Jan is Mentor and Advisor of
Chair Mentors International.
Sir Jonathan Thompson
Chief Executive Officer
and Accounting Officer
Appointed October 2019
Experience
Sir Jon brings experience of
working with government bodies
and has enjoyed a lengthy career
in finance. Prior to joining the
FRC, Jon was the CEO of HMRC,
and previously Permanent
Secretary of the Ministry of
Defence. He has extensive
experience of delivering change
and programme management, as
well as deep experience of finance
and corporate governance as a
former Head of the Government
Finance Function and the CFO of
four organisations.
External appointments
Sir Jon is the Chair of Crown
Hosting Data Centres Ltd, an
unpaid position. He is also the
Deputy Chair of High Speed 2
(HS2) Ltd.
18. Our Board Members (At 30 June 2022)
Audit & Risk
People
Conduct
Regulatory
Standards &
Codes
Supervision
Bold and
black keyline
denotes
Chair of the
Committee
Full
biographical
details of each
Director are
available at
www.frc.org.uk
Key to
Committees
RSC
P
P
AR
S
C
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 86
Independent Non-Executive
Director
Appointed February 2022
Experience
Angela is a solicitor and a former
partner of Pinsent Masons, where
she held senior roles including
joint head of the financial services
(FS) sector group and head of
the outsourcing, commercial, and
technology practice in London.
She specialised in advising FS
sector clients on major change
and business transformation
projects. After a twenty-year
career with Pinsent Masons,
Angela continued her work with
FS sector clients on a consulting
basis.
External appointments
Angela is a Vice-Chair and Senior
Independent Director at Bath
Building Society, where she is
also Chair of the Remuneration
Committee; and at the NSPCC she
is co-opted member of the Audit
and Risk Committee.
Independent Non-Executive
Director and Senior Independent
Director
Appointed July 2015
Experience
John is a former CEO of Swiss
Re, a global reinsurer, and the
Pension Insurance Corporation,
a specialist UK insurer, and has
experience of international
practices of corporate
governance and reporting.
During his executive career, and
subsequently, he has had a strong
interest in the ways business can
make a positive contribution
to, and benefit from, the
management of environmental
risk. His wide-ranging skills and
experience have helped in making
a valuable contribution in meeting
the responsibilities of the Audit
and Risk Committee and the work
of the Regulatory Standards and
Codes Committee.
External appointments
John is a NED of Ecospray Ltd.
Audit & Risk
People
Conduct
Regulatory
Standards &
Codes
Supervision
Bold and
black keyline
denotes
Chair of the
Committee
Full
biographical
details of each
Director are
available at
www.frc.org.uk
Key to
Committees
RSC
RSC
P
AR
AR
S
S S
C
C
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 87
Independent Non-Executive
Director
Appointed February 2022
Experience
Sir Ashley is a business consultant
providing strategic advice on the
European Union. Sir Ashley served
as a Member of the European
Parliament (MEP) for the South
West of England & Gibraltar from
2009–19. During his career in the
European Parliament, Sir Ashley
was a member of the committee
for Economic and Monetary
Affairs and the Industry, Research
and Energy committee. He was
knighted in 2019 for political and
public service.
In 2020 Sir Ashley was appointed
as non-executive Chair of
the Independent Monitoring
Authority, a public body set up
under the UK/EU Withdrawal
Agreement to ensure the rights
of EU citizens living in the UK
are upheld. Before entering
politics, Sir Ashley was a solicitor
specialising in insurance litigation.
External appointments
Sir Ashley is the Chair and NED
of the Independent Monitoring
Authority and a member of the
APCO Worldwide’s International
Advisory Council.
Independent Non-Executive
Director
Appointed June 2021
Experience
Hannah has widespread
experience in economics and
regulation across a range of
industries. She brings significant
experience of developing,
implementing and enforcing
regulatory regimes and
influencing public policy. She
was the first CEO of the Payment
Systems Regulator, the economic
regulator of the UK’s £80 trillion
payments industry, responsible
for driving competition and
innovation in the interests of
consumers. Hannah was also a
senior partner at Ofgem, where
she had responsibility for the
networks division. Until recently,
she was also a NED of the Jersey
and Guernsey Competition and
Regulatory Authorities.
External appointments
Hannah is currently Chair of the
Single Source Regulations Office,
a NED of Thames Water Utilities
Ltd and National Grid Electricity
System Operator, and Council
Member and Trustee of the
Regulatory Policy Institute.
Audit & Risk
People
Conduct
Regulatory
Standards &
Codes
Supervision
Bold and
black keyline
denotes
Chair of the
Committee
Full
biographical
details of each
Director are
available at
www.frc.org.uk
Key to
Committees
RSC
RSC
RSC
P
AR
AR
S
S
C
C
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 88
Independent Non-Executive
Director
Appointed February 2022
Experience
Clare was a partner at PwC for
23 years and retired in 2011. At
PwC she was audit/lead partner
on major financial services groups
and served as UK Insurance
leader and a member of the
UK Assurance executive team.
Since leaving PwC, Clare has
built a portfolio of non-executive
roles and has served as Chair of
the Audit Committee and Senior
Independent Director of Bupa,
a NED of Direct Line Insurance
Group plc, a NED of Retail Charity
Bonds plc, as Chair of the Audit
Committee of Miller Insurance
Services LLP and as Treasurer
of the Disasters Emergency
Committee.
External appointments
Clare is a NED and Chair of the
Audit Committee at M&G plc.
Independent Non-Executive
Director and NED designated for
workforce engagement
Appointed June 2021
Experience
Ruwan is the former COO and a
Managing Partner of SoftBank
Investment Advisers, a Managing
Director and COO for Securities at
UBS Investment Bank and Partner
of Accenture. He is also a former
Senior Independent Director of
ICBC Standard Bank PLC and a
former NED of London North
West University Health Care Trust.
He brings 35 years’ experience
across financial services and 15
years in senior leadership and
director positions. He has an in-
depth knowledge and experience
of operating complex businesses
on a global basis, with a focus
on leveraging technology,
implementing strategy and
change, and embedding and
managing conduct, culture and
controls.
External appointments
Ruwan is currently a NED of UK
Research and Innovation and
chairs their Audit, Risk, Assurance
and Performance Committee.
Audit & Risk
People
Conduct
Regulatory
Standards &
Codes
Supervision
Bold and
black keyline
denotes
Chair of the
Committee
Full
biographical
details of each
Director are
available at
www.frc.org.uk
Key to
Committees
RSC
RSC
P
P
P
AR
AR
AR
S
S
C
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 89
Independent Non-Executive
Director
Appointed February 2022
Experience
David is a solicitor by profession
and was a partner in international
law firm Herbert Smith Freehills
(and predecessor firm Herbert
Smith) for many years. He was
Managing Partner of Herbert
Smith from 2008–12 and Joint
CEO of Herbert Smith Freehills
from 2012–14. He is currently
Chair of Paradigm Trust, a multi-
academy trust, and Vice Chair
of United Response, a charity
supporting adults with learning
disabilities, where he chairs
the Finance and Resources
Committee. He was previously a
member of the governing body of
Queen Mary University of London,
where he chaired the Audit and
Risk Committee and a member
of the board of the Solicitors
Regulation Authority, where he
chaired the Finance and Audit
Committee and was a member
of the Law Society Group Audit
Committee.
External appointments
David is the Chair of Paradigm
Trust, a trustee of United
Response and a NED and member
of Primrose Street Limited.
Audit & Risk
People
Conduct
Regulatory
Standards &
Codes
Supervision
Bold and
black keyline
denotes
Chair of the
Committee
Full
biographical
details of each
Director are
available at
www.frc.org.uk
Key to
Committees
RSC
P
P
AR
S
C
C
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 90
Former Interim Chair
Appointed October 2020
(previously an Independent Non-
Executive Director from March
2012 to July 2020)
Retired October 2021
Experience
Keith was a former CEO at
Standard Life Aberdeen and
brought 15 years of experience
of operating as a PLC director in
the UK and India. He also brought
deep experience in economics
and financial markets and best
practice in stewardship. He had
in-depth knowledge of the asset
management, life insurance and
pension industries, and his advice
had been particularly important
when working on the new
Stewardship Code.
Former Independent Non-
Executive Director
Appointed May 2014
Retired October 2021
Experience
As the former Global Managing
Partner at Clifford Chance, David
brought strong expertise in
corporate law and regulation. In
particular, his experience enabled
him to exercise effective oversight
of the FRC’s enforcement and
monitoring activities and lead an
effective Conduct and Supervision
Committee.
Audit & Risk
People
Conduct
Regulatory
Standards &
Codes
Supervision
Bold and
black keyline
denotes
Chair of the
Committee
Full
biographical
details of each
Director are
available at
www.frc.org.uk
Key to
Committees
RSC
RSC
P
P
P
AR
S
S
C
C
Members whose terms ended during the 2020/21
year and prior to the approval of this report
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 91
Former Independent
Non-Executive Director
Appointed April 2018
Retired August 2021
Experience
Dame Julia brought experience
of broader civil society, having
been the Chief Executive of the
Joseph Rowntree Foundation
for ten years. Her expertise also
included roles in public regulatory
bodies. She had wide experience
of working within civil society
and Government. She offered
an understanding of diverse
perspectives on the work of the
FRC, and this enabled her to chair
the Regulatory Standards and
Codes Committee effectively.
Former Independent
Non-Executive Director
Appointed April 2018
Retired August 2021
Experience
Jenny brought experience
of public interest, social and
consumer issues. Her career
included board and chair roles
in the public and not-for-profit
sectors. Her public interest focus
had been brought to bear in
discussions around the future
of the FRC as it transitions to
ARGA. She was a member of the
Audit and Risk Committee and
chaired the People Committee.
She was also the nominated
staff representative on the
Board and held responsibility for
engagement with the workforce,
meeting regularly with the FRC’s
People Forum and Diversity and
Inclusion Committee to bring
their perspective to the Board.
Audit & Risk
People
Conduct
Regulatory
Standards &
Codes
Supervision
Bold and
black keyline
denotes
Chair of the
Committee
Full
biographical
details of each
Director are
available at
www.frc.org.uk
Key to
Committees
RSC
RSC
P
P
P
AR
AR
AR
S
C
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 92
Board appointments
Appointments to the FRC Board are made by the Secretary of State
for BEIS in accordance with the Public Appointments Process and the
Governance Code for public appointments.
Board succession
The People Committee annually considers the skills and experience
needed for both the Board and Board Committees and makes
recommendations to the Board and to the Secretary of State as
appropriate to inform succession planning. As part of the skills review,
consideration was given to the FRC current and future business needs as
per the plan and strategy, the environment in which the FRC operates,
the competencies and experience of Board members and Board member
tenure. Consideration was also given to the benefits of diversity and the
FRC’s aspirations as set out in the Board Diversity Policy.
During the 2021/22 year, the terms of office of a number of NEDs ended
and seven new NEDs were appointed. Due to reduced numbers on the
Board, the succession planning exercise was undertaken by the full Board.
During the year a number of changes were made to the composition of
the Board, which can be found on page 100.
A full succession exercise was undertaken in Q4 of the 2020/21 year and
submitted to BEIS to inform the NED recruitment exercise planned for Q1
of the 2021/22 year. The exercise highlighted vacancies arising over the
3-year period and skills that would be needed to support the transition
to ARGA. The recruitment exercise resulted in the appointment of Ruwan
Weerasekera and Hannah Nixon in June 2021 and, following a second
round, the appointment of Angela Cha, Sir Ashley Fox, Clare Thompson,
David Willis and Sir Jan du Plessis in 2022. As a result of the delays to
recruitment, no formal succession exercise for the Board was undertaken
in the 2021/22 year, although succession planning with regards to Board
Committees and the membership of the FRC’s Advisory Panel
was undertaken.
Board induction and training
A detailed induction programme tailored for the Chair and all new
NEDs was scheduled to introduce them to the FRC. The programme
included meeting with senior executives from across the FRC to gain a full
understanding of the roles and responsibilities of the senior management
of the FRC, its standard setting and enforcement procedures and policies,
and the operations of the FRC. All Board members received bespoke
ongoing training on various matters, including IT security, GDPR and the
Freedom of Information Act.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 93
Board diversity
The Board reviewed and revised its DiversityPolicy in February 2022.
The revised policy sets out the Board’s support for the Government’s
ambitions with respect to diversity and the Board’s commitment to work
with the Secretary of State in pursuit of the Government’s objectives.
At the time of writing this report, three of the nine Board members
are women and there are two Board members from an ethnic minority
background. Steps to launch a campaign to recruit further NEDs is
underway.
Independence and conflicts
The FRC attaches special importance to avoiding conflicts of interest
between its work and its Directors. The Board ensures that there are
effective procedures in place to avoid conflicts of interest by Directors
and approved a revised Conflicts of Interest Policy in March 2022.
The Board, supported by its People Committee, assesses and monitors the
Board and its committee members’ other directorships to ensure there is
no excessive commitment or conflict of interest. The Register of Interest
for the Board and its committee members is maintained as set out in the
provisions of the internal Code of Conduct and is published on the
FRC website.
Roles and responsibilities
The roles of the Chair and Chief Executive Officer are clearly defined,
and the Board supports the separation of the two roles. As the majority
of the NEDs are new, the Board plans to review the roles of the Chair,
Chief Executive Officer and Accounting Officer, Deputy Director/Senior
Independent Director and NEDs in Q3 2022/23.
Company Secretary
The Board and its Committees have access to an appropriately qualified
and experienced Company Secretary, who provides independent advice
on governance matters. They are responsible for working with the
Chair and the Chief Executive Officer to develop the agendas for Board
meetings and ensure that all procedures are complied with. The removal
and appointment of the Company Secretary is a matter reserved for the
Board’s approval.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 94
Engagement with employees and wider stakeholders
As the NED designated for engagement with the workforce (Jenny
Watson until August 2021 and Ruwan Weerasekera (from September
2021) is also the D&I Champion on the Board, they attended meetings
of the People Forum and Diversity and Inclusion Committee (staff
consultative bodies) on a regular basis. They reported to the People
Committee, and the Board where appropriate, following attendance at
those meetings. The considerations and the outcomes of those matters
are set out on page 105.
The Board recognises the values of wider stakeholder views and takes
them into account in Board decision-making which is reflected within
the ‘Areas of focus’ as set out on page 97. During the year, the Board
and Committee paper templates were revised to give more explicit
consideration of the impact of the proposal on stakeholders, society,
environment and suppliers. While developing proposals, due regard has
been given to regulatory requirements, policies and procedures, including
the Equality Act 2010, the Regulators’ Code and 2015 Deregulation Act.
In 2021, the Advisory Panel was introduced to draw members for external
and independent input from a wide range of stakeholders.
Furthermore, the Board received routine reports from the Director of
Stakeholder Engagement and Corporate Affairs. More detail on how the
FRC engages with its key staff and other stakeholders is set out on pages
35–42. Matters considered by the Board and the decisions made, and the
progress update on those decisions, can be found on page 98.
Board effectiveness
In accordance with the UK Corporate Governance Code, Board
effectiveness is usually reviewed annually, with an externally led review
every three years. The last externally facilitated review was in 2015/16.
The Independent Review of the Financial Reporting Council (the
Kingman Review), which was issued in December 2018, recommended
changes in the composition of the Board and significant simplification
of the governance architecture. In response to the Kingman Review, an
internal review of governance arrangements was undertaken and a new
structure to enhance the effectiveness, speed and responsiveness of
the organisation, while establishing clearer lines of accountability and
empowering the Executive, was introduced in 2021.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 95
Due to the delays in the recruitment of the Chair and NEDs, which led
to a temporary reduction in Board membership, a formal effectiveness
review of the Board was not undertaken in 2021/22. However, during the
year, the Board had reflected on its governance arrangements and taken
steps to ensure that, as far as is possible in the circumstances, the highest
standards of corporate governance were observed and ensured a culture
of openness. The Board adapted to the challenges posed by the reduced
membership and continued to ensure its responsibilities were met.
With the implementation of the new governance structure and
introduction of Advisory Panel and Senior Advisors from 1 January 2021,
an internal review of their operation was undertaken in October 2021.
The revision to the structure was generally well received and introduction
to external advisory structure met the objectives of being simpler, more
streamlined and providing quicker access to external advice. A series of
actions were identified from the review which included promoting the
use of the Advisory Panel and Senior Advisors amongst staff, expanding
descriptions of the skills and experience of each individual and providing
clarity on the use of the advisors. These were implemented in early 2022.
A formal external review of the effectiveness of the Board will be
undertaken in early 2024 as per the explanation on page 78.
Activities of the Board during the year
The Board held seven scheduled meetings during the year. In addition,
a number of matters were considered by correspondence. The details of
directors’ attendance at Board and Committee meetings are set out on
page 112.
Board meeting agendas are carefully tailored in advance by the Chair,
Chief Executive and the Executive Team to ensure an appropriate
balance between strategic, operational and standard setting as well as
enforcement business. The Board agenda usually includes a report from
the Chief Executive on key matters, the Transformation Programme and,
on a quarterly basis, management information packs that provide key
information on the delivery of the strategy. The Chairs of the governance
and regulatory committees update the Board on the proceedings of
their meetings, including key discussion points and any particular areas
of concern. During the year a number of matters were considered by
written resolution via email outside formal scheduled meetings. The
Board received meeting papers via a portal that enhances the security of
confidential and sensitive information. All meeting papers were presented
in a template that enabled the Board to focus on points of issue and
understand what stakeholder engagement had been undertaken and
what input had been sought in developing the recommendations.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 96
Board responsibilities
The NEDs assess, challenge and decide on the Executive Directors’
proposals and matters for decision to ensure they are aligned with the
FRC’s strategy and purpose.
The Board’s responsibilities include, but are not limited to:
• Setting FRC strategy and monitoring progress against the agreed
strategy (details can be found in the Strategic Report on pages 6–70).
• Overseeing the implementation of a robust controls framework to
allow effective management of risk. Most of this work is supported by
the Audit and Risk Committee and input from the Government Internal
Audit Agency (GIAA) (see pages 102–103).
• Issuing and maintenance of Codes and/or Standards for corporate
governance, stewardship, corporate reporting, accounting, auditing,
assurance services and actuarial work.
• Advising the SoS on the composition of the Board and the
remuneration of Board members.
• Composition of, and succession arrangements for Board Committees,
the Advisory Panel and Senior Advisers.
• Ensuring workplace policies and practices are in place that align with
the FRC’s culture and values and operate in support of its strategy.
• Exercising the functions of the Secretary of State under Part 42 of the
Companies Act 2006 and as Competent Authority under the Statutory
Audit and Third Country Audit Regulations 2016.
The Board discharged some of its responsibilities through its governance
and regulatory committees. More detail on matters considered by the
Board can be found in the Board minutes, which are published on the
FRC website. Matters reserved to the Board can be found in the FRC’s
Governance Handbook.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 97
Key areas of focus of the Board and its Committees during
the year.
The focus of the Board’s business throughout the year can be assessed
through the perspective of ten broad categories. The Board received
input and recommendations from its committees in accordance with the
committees’ terms of reference. Please see the reports on the individual
Committees for more detail on their areas of focus on pages 101–108.
Promoted ongoing, meaningful consultations and
feedback routes with external stakeholders. Oversaw
the Executive’s use of stakeholder input to inform
strategy, objectives and the development and revision
of standards, policies and guidance.
This year the Board and its Committees considered
feedback on the revisions to the AEP, revisions to ISAs
(UK 0, ISRE 2410 (UK), ISQM (UK) 1, FRSs, the Audit Firm
Governance Code and related published guidance.
The Board received updates on the FRC’s work and
collaboration with other regulators, standard setters,
professional membership groups and government
bodies, for example UKEB, HMRC, FCA and the newly
established ISSB.
Through receipt of reports from teams across the FRC,
monitored the real time application and compliance
with FRC issued standards and codes in the UK today.
Noted areas that had been identified through the
FRC’s work as reflecting good practice, as showing
improvement, as requiring review, revision or additional
guidance or of concern.
Reviewed reports on the quality of Stewardship Code
signatory applications, audit quality across the market
(including PIEs, local major audits, government audits
and Crown Dependency audits), current levels of
reporting against the Corporate Governance Code,
the Wates principles and mandatory and voluntary
non-financial reporting standards.
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Listening to
stakeholders
Understand
-ing the
current
market
Audit & Risk
People
Conduct
Regulatory
Standards &
Codes
Supervision
Key to
Committees/
Councils
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FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 98
Supported the growth of the FRC’s research work
both internally and in collaboration with external
research bodies.
Considered the findings of Lab reports, economics and
analytics reports, AQR and CRR inspections/reviews,
thematic reviews on key topics by CRR, AQR and AMS,
and collaborative research projects e.g. FTSE 350 Board
effectiveness and modern slavery disclosures.
Considered and provided input to the cross FRC
Transformation Programme, which incorporated
recommendations arising from the Kingman review,
the CMA’s market study and the Brydon review,
together with organisational changes associated with
establishing ARGA.
Supported the executive in building proposals to
respond to the Government White Paper Restoring
trust in audit and corporate governance and proposals
for increased responsibilities and objectives, such as
local audit regulation, actuarial regulation, PIE audit
registrations, audit market competition regulation,
changes to our audit firm supervision approach and
future funding of the FRC.
Considered the future of corporate reporting and the
development of sustainability standards.
Received, considered and where necessary took action
on regular reports on the FRC’s compliance with
applicable laws and codes.
Ensured appropriate transparency of the FRC’s work
in the public interest, oversaw the discharge of its
responsibilities in relation to its designated Competent
Authority for audit in the UK, fulfilment of the Service
Level Agreement and oversight of the governance of the
UKEB, GDPR compliance, complaints handling, market
sensitive information handling, financial reporting and
the progression of enforcement investigations.
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Building
knowledge
through
research
Preparing for
the future
Compliance
and proper
discharge
of statutory
responsibil
-ities
Audit & Risk
People
Conduct
Regulatory
Standards &
Codes
Supervision
Key to
Committees/
Councils
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FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 99
Remained alert to the risks and opportunities to the
achievement of the FRC’s objectives.
Considered alignment of the FRC’s approach and
outputs with our four core values. Reviewed and
refreshed the FRC’s values. Issued a revised Code of
Conduct, which included a new Conflict of Interest
policy and an updated Gifts and Hospitality Policy.
Oversaw the FRC’s financial recording and reporting,
including the development of a comprehensive
management information pack.
Ensured Value for Money and compliance with
Managing Public Money was at the heart of decision-
making and budget plans.
Monitored progress against KPIs, the effectiveness
of FRC’s internal control systems and engaged with
internal and external auditors.
Oversaw developments to the FRC’s offer to its staff,
including pay considerations, reward policies, well-
being and support, staff survey results, recruitment and
development, return to the office policies, succession
planning and the promotion of greater diversity and
inclusion throughout the FRC.
Navigated the changing composition of the Board.
Protected and passed on knowledge from former
directors to the new Board, revised the committees’
Terms of Reference, inducted new Directors, appointed
committee members, maintained strong communication
channels and remained vigilant to ensure the effective
discharge of its governance responsibilities through
the year.
Audit & Risk
People
Conduct
Regulatory
Standards &
Codes
Supervision
The outputs
from the
Board during
the year are
covered in
more detail in
the Strategic
Report and in
the published
minutes
of board
meeting.
Key to
Committees/
Councils
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Risk
management
Upholding
the FRC’s
values and
culture
Internal
control and
financial
management
Supporting
our staff
Maintaining
good
governance
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 100
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Audit & Risk
Page 101
Committees Membership as at
31 March 2022
Membership from
1 April 2022
Conduct
Page 104
People
Page 105
Supervision
Page 108
Regulatory
Standards &
Codes
Page 106
John Coomber (Chair)
Michael Hearty
Hannah Nixon
Ruwan Weerasekera
Sir Jon Thompson (Interim Chair)
Geoffrey Green
Philippa Hardwick
John Hitchins
Andrew Johnston
Anne Whitaker
Ruwan Weerasekera (Chair)
Sir Jan du Plessis
Hannah Nixon (Chair)
John Coomber
Sir Jon Thompson (Interim Chair)
Sean Collins
Geoffrey Green
Philippa Hardwick
Andrew Johnston
Ruwan Weerasekera
Clare Thompson (Chair)
Angela Cha
Hannah Nixon
Ruwan Weerasekera
David Willis (Chair)
Angela Cha
Sir Ashley Fox
Ruwan Weerasekera (Chair)
Sir Jan du Plessis
Clare Thompson
David Willis
Hannah Nixon (Chair)
John Coomber
Sir Ashley Fox
Clare Thompson
John Coomber (Chair)
Angela Cha
Hannah Nixon
Ruwan Weerasekera
Board Committees
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 100
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 101
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John Coomber
Chair of
Audit & Risk
Committee and
Independent
Non-Executive
Director
19. Audit and Risk Committee Report
Our focus during 2021/22
• Supporting the Board in its review of the integrity of the financial
reporting.
• Monitoring the effectiveness of systems of risk management and
internal controls, including risks to FRC as it transitions into ARGA.
• Overseeing the activities of internal audit function and the external
auditor.
• Reviewing the FRC’s arrangements in relation to GDPR, Information and
Technology, Business Continuity Planning and Whistleblowing policies.
Role of the Committee
The Committee supports and advises the Accounting Officer (the Chief
Executive) and the Board by providing oversight of the company’s financial
reporting process and use of public funds, corporate governance, the audit
process, the system of internal controls, including business continuity and
information technology, the identification and management of significant
risks, and its compliance with laws and regulations. The terms of reference
of the Committee can be found on www.frc.org.uk
Membership and attendance
Membership of the Committee changed during the year following
departures from the Board. The membership of the Committee, and
attendance at Committee meetings during the year can be found on page
112. All members, with the exception of one co-opted member (Michael
Hearty), were independent NEDs of the FRC Board. The Board was satisfied
that the combined knowledge and financial experience of the Committee
members as of 31 March 2022 ensured that it could fulfil its responsibilities
effectively. The biographies of all members can be found on www.frc.org.uk.
The Committee met five times during the year and considered a number
of matters by email outside formal meetings. From October 2021, the
meetings were held in the FRC office with a hybrid option to attend
virtually as a result of the Covid-19 pandemic. In addition to the members,
the Chair, the external auditor (NAO) and the internal auditor (GIAA)
were invited to each meeting, together with the Chief Executive, Finance
Director, General Counsel and the Company Secretary. The Committee met
the external auditor in private once during the year and the Committee
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 102
Chair met privately with both the internal and external auditor outside
the formal committee process during the year. To protect the objectivity
and independence of the external auditor, it is the FRC’s policy that they
are not contracted to carry out any non-audit services. The effectiveness
of the external auditor was assessed by the Committee based on its own
interaction with the auditor and input from the FRC Executive.
The Senior Statutory Audit partner responsible for the external audit of
the FRC is not part of the NAO’s Central Quality Team nor responsible for
PIE audits inspected by the FRC. The Board reviews how the relationship
and potential conflicts of interest between the NAO and FRC are managed
each year prior to appointing the FRC’s external auditors. The details of
members’ attendance at the Committee meetings are set out on
page 112.
How the Committee discharged its responsibilities
The Committee has an annual forward agenda to cover the key events
in the financial reporting cycle, specific risk matters identified by the
Committee and standing items that the Committee is required to consider
in accordance with its terms of reference. The matters considered by the
Committee during the year can be found on pages 98–99.
Internal Audit opinion (2021/22)
A key source of independent assurance for FRC is the internal audit
service provided by the Government Internal Audit Agency (GIAA), which
complies with the Public Sector Internal Audit Standards. The annual
internal audit programme is closely linked to its operational priorities and
key risks. Arrangements are in place to ensure that the Accounting Officer
is made aware of any significant issues which indicate that key risks are
not being effectively managed.
The Head of Internal Audit (HIA) provided a sustained but improving
opinion on governance, risk management and control for 2020/21,
which she has again assessed as ‘Moderate’. Despite this not being an
improvement on the previous years’ opinion, the nuances of the report
reflect that FRC continues to strengthen its control environment built
around good governance and effective risk management. Emerging form
the restrictions of the pandemic, the FRC has adopted a people-first
approach to implementing a hybrid working model, providing employees
with greater flexibility. The HIA also noted that FRC continues to deliver
on its ambition to develop a strong risk management culture and has
maintained its focus on regaining trust through applying principles of
high quality corporate and stewardship reporting, ensuring it can fulfil
statutory and legal responsibilities in terms of its oversight roles and
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FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 103
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practices. She also acknowledged the FRC’s proficiency in developing
a strong system of internal control and a compliant culture within the
organisation, ensuring legal and regulatory requirements are met and
the embedding of compliance with managing public money principles.
Going forward, the HIA noted that the FRC continues to work
collaboratively with BEIS on its transformation to become ARGA.
Many of the reforms needed for the creation of ARGA require primary
legislation, and its omission from the Queen’s Speech in May 2022
means this will now be delayed for at least another two years. However,
the HIA recognised that the intention to create ARGA and equip it
with its powers at the earliest possible juncture remains a priority,
and work continues at pace to implement the wider changes and
recommendations in the intervening period. The previously reported
weaknesses in terms of governance, risk management and control
relating to FRC’s IT operating environment have been addressed, and
the resulting IT and Cloud strategies can flex to accommodate the
transition to ARGA.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 104
David Childs
Chair of
Conduct and
Supervision
Committees
and Non-
Executive
Director until
October 2021
Sir Jon
Thompson
Non-voting
Chair of the
Conduct and
Supervision
Committees
from October
2021 to March
2022
20. Conduct Committee Report
Our focus during 2021/22
• Ensuring the public interest remains at the forefront when taking
decisions regarding regulatory action against accountants, actuaries
and auditors.
• Monitoring the progress and outcomes of investigations.
• Delivering a revised AEP with effect from 5 January 2022 that supports
fair, timely and effective disciplinary action.
Role of the Committee
The Committee oversees the delivery of the FRC’s enforcement work. It
has delegated authority from the Board to consider information gathered
and presented to it by the Case Examiner and to determine whether to
commence an investigation under the Accountancy or Actuarial Schemes
or under the AEP. It also approves investigation budgets and considers
the timing, content and nature of publications relating to investigations
and their outcomes.
Membership and attendance
During 2021/22, the Committee comprised of seven and then six non-
executive members, which included two lawyers, one former actuary
and three former audit partners. In October 2021, after nearly eight
years, David Childs retired from his role as Chair of the Conduct and
Supervision Committees. While awaiting BEIS’ appointment of new Board
members, Sir Jon Thompson was appointed as a non-voting chair of the
Committee’s business.
How the Committee discharged its responsibilities
The Committee met twelve times and took some additional decisions
through email correspondence outside scheduled meetings. Meetings
were a mix of virtual, in-person and hybrid meetings in response to
government Covid-19 guidelines and the personal choice of the
Committee’s members.
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FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 105
Ruwan
Weerasekera
Chair of People
Committee,
NED
designated
for workforce
engagement
and
Independent
Non-Executive
Director
21. People Committee Report
Our focus during 2021/22
• The development and embedding of a new approach to talent
management.
• Enhancing staff learning and development opportunities.
• Staff well-being and support.
Role of the Committee
The Committee provides the FRC Executive with challenge, constructive
dialogue and strategic direction on issues relating to the appointment
and recruitment, remuneration, talent management and welfare of FRC
staff and NEDs and takes high-level decisions on such issues as necessary.
The terms of reference of the Committee can be found on www.frc.org.uk.
Membership and attendance
The membership of the Committee changed during the year following
departures from the Board and new appointments. The membership
of the Committee, and attendance at Committee meetings during
the year can be found on page 112. Through the year all members of
the Committee were independent NEDs of the FRC Board. The Chair
of the People Committee is the NED with responsibility for workforce
engagement. In this capacity he attends meetings of the staff People
Forum and occasional staff meetings to broaden his understanding of
people matters and improve the visibility of people matters at Board
and Committee level.
How the Committee discharged its responsibilities
The Committee met three times during the year and considered a number
of matters by email outside formal meetings. The meetings were held
virtually as a result of the Covid-19 pandemic. In addition to the Chair and
the members, the meetings were also attended by the Chief Executive,
Company Secretary, Executive Director of Corporate Services and General
Counsel, and the Chief People Officer. Due to the reduced number of
members on the Board, a number of items which would ordinarily have
been delegated to the Committee were discussed by the full Board.
The matters considered by the Committee during the year can be found
on page 99.
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FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 106
Hannah Nixon
Chair of
Regulatory
Standards
and Codes
Committee and
Independent
Non-Executive
Director
22. Regulatory Standards and Codes
Committee Report
Our focus during 2021/22
• Monitoring reporting against the UK Corporate Governance Code and
assessment of stewardship reports.
• Making revisions to actuarial, audit and assurance and accounting
standards.
• FRC Lab strategy and its activities.
• Developing actuarial regulatory reform and audit market competition
policy proposals.
Role of the Committee
The Committee remit is to support high quality, effective and
proportionate standards, codes and guidance for corporate governance,
corporate reporting, stewardship, audit and assurance, and actuarial work.
This includes the following specific responsibilities:
• approving policies and procedures, commissioning internal reviews
and the issue of consultations, and recommending final standards and
codes to the Board for approval;
• approving minor, non-contentious amendments to regulatory
standards and codes (barring accounting standards);
• recognition and oversight of SORP-making bodies;
• monitoring developments in international sustainability standard
setting; and
• approving the issue and maintenance of FRC taxonomies, including
consultations.
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FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 107
Membership and attendance
The membership of the Committee changed during the year following
departures from the Board. The changes to the membership of the
Committee can be found on page 100, and the attendance at Committee
meetings during the year can be found on page 112. Throughout the year
all members of the Committee were independent NEDs of the FRC Board.
How the Committee discharged its responsibilities
The Committee met five times and also approved a number of matters
by email outside the formal meetings. Meetings were a mix of virtual,
in-person and hybrid meetings as required by government Covid-19
guidelines and also to allow for the personal choice of members.
From September 2021, at the end of each meeting, the Committee
reviewed the performance of the meeting. It also discussed the issues
relating to holding hybrid meetings and took steps to improve the
effectiveness of the meetings. The Committee’s terms of reference and
the minutes can be found on www.frc.org.uk.
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FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 108
23. Supervision Committee Report
Our focus during 2021/22
• Ensuring a fair, consistent and robust approach to monitoring and
supervisory activities.
• Considering the potential implications of trends and risks within the
audit market.
• Overseeing the FRC’s effective discharge of its delegated statutory
responsibilities and powers in relation to the oversight of the
professional bodies, corporate reporting review and as the Competent
Authority for Audit in the UK.
Role of the Committee
The Committee was established on 1 April 2021 to oversee the FRC’s work
in relation to the supervision of audit work, audit firms and corporate
reporting in the UK, and in relation to our oversight of the accountancy
and actuarial professional bodies. It receives regular updates from the
FRC’s monitoring and supervisory teams regarding the approach, and
risks to delivering, the FRC’s supervisory objectives. It has delegated
authority from the Board to exercise its powers in relation to companies’
compliance with UK corporate reporting regulations. It also oversees
the FRC’s designated statutory responsibilities in providing independent
oversight of the professional bodies, the qualifying bodies and the
Comptroller and Auditor General.
Membership and attendance
During 2021/22, the Committee had seven non-executive members.
In October 2021, David Childs retired from his role as Chair of the
Supervision Committee and the Board appointed Sir Jon Thompson as
a non-voting chair of the Committee’s business until 31 March 2022.
A new Chair and three new members were appointed from 1 April 2022.
How the Committee discharged its responsibilities
The Committee met seven times and took some additional decisions
through email correspondence outside scheduled meetings. Meetings
were a mix of virtual, in-person and hybrid meetings.
S
David Childs
Chair of
Conduct and
Supervision
Committees
and Non-
Executive
Director until
October 2021
Sir Jon
Thompson
Non-voting
Chair of the
Conduct and
Supervision
Committees
from October
2021 to March
2022
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 109
Element
and purpose Operation Opportunity/output
24. Remuneration Framework
The Chief Executive is the only Executive member of the Board. The performance of the
Chief Executive and other ExCo members is assessed against both collective objectives set in
line with the FRC business plan and individual objectives. An overview of the remuneration
framework that applied to all staff during 2020/21 is set out below. The main components
of the Chief Executive and other ExCo members’ remuneration are consistent with this
framework unless indicated otherwise.
Base salary
To provide core
remuneration
for the role,
recognising the
responsibility
for setting and
delivering the
annual FRC Plan
and Budget.
Salaries are reviewed annually by the
Committee, which considers the Chief
Executive and other ExCo members’
responsibilities, performance and
experience alongside market trends
and relevant comparator organisations,
where available.
Salaries for new Chief Executive and
other ExCo member appointments are
now subject to HM Treasury approval
in line with Senior Civil Service Pay
Guidance.
Work to benchmark some
Executive Director roles
was undertaken by the
independent consulting
group Korn Ferry.
The Chief Executive and
ExCo members are required
to achieve higher ratings
for performance than other
members of staff in order to
qualify for a potential salary
increase.
Individual adjustments in
excess of general market
movements may be made in
appropriate circumstances
(e.g. where the role scope has
changed or as a reflection of
a significant development in
the role).
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 110
Element
and purpose Operation
Opportunity /
output
Benefits
To provide a
competitive and
cost-effective
benefits package
in line with public
sector norms.
Pension benefits
To provide
competitive
retirement
benefits in
line with
relevant market
comparators.
All staff who were offered employment
prior to 1 June 2018 are eligible to
receive benefits, which may include:
• dental insurance;
• private health insurance;
• income protection insurance;
• life insurance.
In aligning the FRC’s remuneration policy
more closely with the public sector, new
joiners who started from 1 June 2018 are
no longer eligible for dental or private
health insurance.
All staff are eligible to participate in the
group personal pension scheme, which
is a defined contribution scheme.
Staff offered employment prior to 1
June 2018 were able to elect to take
pay in lieu of pension contributions less
an amount equivalent to Employer’s
National Insurance contributions but this
has been discontinued for staff offered
employment after 1 June 2018.
A maximum of 10% of base
salary.
Pay multiples (subject to audit)
Reporting bodies are required to disclose the relationship between the remuneration
of the highest paid director in their organisation and the median remuneration of the
organisation’s workforce.
The banded remuneration of the highest paid Director, the Chief Executive Officer, in office
at 31 March 2022, was £330,000–335,000 (2020/21: £330,000–335,000). This was 3.78 times
(2020/21: 3.87) the median remuneration of the workforce, which was £88,289 (2020/21:
£85,648).
Total remuneration includes salary and benefits in kind. It does not include severance
payments, or any employer’s pension allowance or payments in lieu of annual leave and
pension payments. In 2021/22 no employee received remuneration in excess of the annual
equivalent remuneration of the highest paid director.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 111
Directors’ remuneration (subject to audit)
2021/22 2021/22 2021/22 2021/22 2020/21
Fees/salary (£) GHI (£)
(1)
Pension (£)
(2)
Total (£) Total (£)
Non-Executive Directors
Sir Jan du Plessis (from February 2022) 20,089 - - 20,089 -
Angela Fung Ngor Cha (from February 2022) 2,917 - - 2,917 -
David Childs (to October 2021) 48,871 - - 48,871 90,000
John Coomber 30,652 - - 30,652 49,375
Sir Ashley Fox (from February 2022) 2,917 - - 2,917 -
Hannah Nixon (from June 2021) 19,534 - - 19,534 -
Keith Skeoch
(3)
(to October 2021) 39,718 - - 39,718 46,949
Clare Thompson (from February 2022) 2,917 - - 2,917 -
Dame Julia Unwin (to August 2021) 29,167 - - 29,167 70,000
Jenny Watson (to August 2021) 12,500 - - 12,500 30,000
Ruwan Weerasekera (from June 2021) 16,377 - - 16,377 -
David Willis (from February 2022) 2,917 - - 2,917 -
Sub-total 228,576 - - 228,576 320,385
Executive Directors
Sir Jonathan Thompson
(4)
Sub-total 338,885 3,948 33,000 375,833 377,155
Total
(5)
Notes:
When Directors have served for part of a year, the amounts shown are for the relevant
proportion of the year.
(1) This is Life Assurance and Group Income Protection Insurance.
(2) This is a payment to a defined contribution scheme.
(3) Keith Skeoch was a NED to 31 July 2020 and waived his fees of £11,667 in favour of charity.
(4) Executive Directors are entitled to receive some other benefits in accordance with the
remuneration framework; the benefits vary depending on when their employment with
the FRC started. The figures shown are the cash equivalent of their full pay and benefits.
(5) Directors’ remuneration in 2021/22 amounted to 1.9% (2020/21: 2.6%) of total company
remuneration.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 112
The attendance of the Directors and Committee Members at scheduled
meetings held during the year
* The Committee met in May, September and December 2021. The members’ attendance was dependent
upon the timing of their appointments to the Committee.
** No formal meetings held since his appointment.
*** Ineligible to attend one additional meeting where the business related to his former firm.
Sir Jan du Plessis 2/2 0/0**
Angela Cha 1/2
David Childs 3/3 7/7 2/2 6/6
Sean Collins 9/11*** 7/7
John Coomber 7/7 5/5 1/1 5/5
Sir Ashley Fox 2/2
Geoffrey Green 11/12 6/7
Philippa Hardwick 11/12 6/7
John Hitchins 9/12 6/6
Michael Hearty 4/5
Andrew Johnston 10/12 6/7
Hannah Nixon 6/6 3/3 3/3
Keith Skeoch 3/3 2/2 1/2
Clare Thompson 1/2
Sir Jonathan Thompson 7/7 6/6 2/2
Dame Julia Unwin 2/2 2/2 1/1 2/2
Jenny Watson 2/2 2/2 1/1
Ruwan Weerasekera 6/6 3/3 2/2 1/1
Anne Whitaker 12/12 7/7
David Willis 2/2
Board
Audit & Risk
Committee
Conduct
Committee
People
Committee*
Supervision
Committee
Regulatory
Standards & Codes
Committee
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 113
25. Directors’ Report
The Directors of the FRC (Registered number: 02486368) present their Annual Report
and Financial Statements for the year ended 31 March 2022. This report should be read
in conjunction with both the Strategic Report (pages 6–70), which includes Ethics and
Compliance (pages 48–50), and the Governance Report (pages 71–112), which includes
the Corporate Governance Statement.
Topic/
Reporting
responsibility
Where to find
more information
Relevant policies
and procedures or
background reading Page
Business model, strategy
and principal activities
Research and
development activities
Analysis of performance
and current position
Important events
affecting the FRC since
the end of the financial
year
External trends and
factors affecting future
development and long-
term viability
Likely future
developments
Corporate Governance
Statement
Principal risks and risk
management policies
Strategic Report
Strategic Report
Strategic Report:
Performance and the
financial statements
Strategic Report
Strategic Report
Strategic Report
Governance and
Transparency
Strategic Report:
Risk Management
48–50
72–109
60–70
Consultation: restoring
confidence and trust
in audit and corporate
governance
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 114
Topic/
Reporting
responsibility
Where to find
more information
Relevant policies
and procedures or
background reading Pages
Financial risks
Review of internal
controls
Ethics and Compliance
Section 172 statement
How we have
engaged with
business relationships
(stakeholders)
Disclosures on payment
practices
Employee engagement
Employee diversity
Statement on the
employment of disabled
persons
Gender pay gap
reporting and pay ratios
Notes to the financial
statements
Governance and
Transparency:
Audit & Risk Committee
Strategic Report: Ethics
and Compliance
Strategic Report:
s172 and Stakeholder
Engagement
Strategic Report:
s172 and Stakeholder
Engagement
Strategic Report: Ethics
and Compliance
Strategic Report: Our
People
Strategic Report: Our
People
Strategic Report: Our
People
Strategic Report: Our
People Remuneration
report
60–70
72–109
48–50
41–42
48–50
35–40
Anti-bribery policy
Whistleblowing policies
Gifts and Hospitality
policy
Code of Conduct
Procurement policy
Modern Slavery
Statement
Payment policies
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 115
Topic/
Reporting
responsibility
Where to find
more information
Relevant policies
and procedures or
background reading Pages
Sustainability and climate
change considerations
SECR disclosures
Professional integrity
Information and data
security
Strategic Report:
Sustainability
Strategic Report:
Environmental impact
Strategic Report: Ethics
and Compliance
Strategic Report: Ethics
and Compliance
43–47
Code of Conduct
Information security
policies
Directors’ Responsibilities Statement
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 116
Board of Directors
We have included information on the names of the individuals, who, at any time during the
financial year, were Directors of the FRC on pages 85–100. The attendance of the Directors at
the meetings held during the year is also on page 112.
Appointment of Directors
Directors are appointed for fixed terms, which may be renewed, rather than being submitted
for re-election at regular intervals. Information on changes of the Directors during the year,
including appointments made during the year, can be found on page 100.
Retirement, vacation and removal of Directors
In accordance with the Articles of Association (5.1), the Secretary of State, or his or her duly
authorised representative, may at any time remove any person so appointed. A director
of the Company shall retire from office upon the expiry of the period specified in the
most recent notice of his or her appointment or reappointment received by the Company,
or if no period is specified therein, upon the third anniversary of such appointment or
reappointment. The office of director shall be vacated if the director is removed from office
pursuant to the provisions of Article 5.1, as follows:
i. resigns his or her office by notice in writing received at the registered office of the
Company;
ii. ceases to be a member of the Company;
iii. ceases to be a director by virtue of any provision of the Companies Acts or otherwise
becomes prohibited by law from being a director; or
iv. in the case of the Chief Executive, ceases to hold that position.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 117
Directors and Directors’ insurance and indemnities
Under the terms of the FRC’s Articles of Association (‘the Articles’), all Directors are members
of the FRC, and each has undertaken to guarantee the liability of the FRC up to an amount
not exceeding £1.
There are no other members, and no dividend is payable.
Articles of Association
The Articles may be amended by a special resolution of the Company members. During the
year the Company amended the Articles to revise responsibilities for various Committees, to
remove references to a Deputy Chair and to remove the requirement for an Annual General
Meeting.
Related party transactions
The FRC is a central government body operating under a remit letter from BEIS. Any related
party transactions arise in the normal course of business and are not material.
Political donation disclosures
Key contracts
The FRC has a number of key contracts. However, the FRC performs several checks on the
providers of those contracts, including financial health checks. As part of the FRC’s Business
Continuity Planning, scenario testing is undertaken in respect of the failure of one of the
firms providing the key contracts.
Company’s trading activities
The FRC is not a trading company. There have been no changes in corporate structure.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 118
Financial risk management
More detail can be found in the Notes to the Financial Statements on pages 138–151.
Disclosure to the Auditor
Auditors
The NAO on behalf of the Comptroller and Auditor General has expressed its willingness to
remain in office and the Audit and Risk Committee has recommended its reappointment to
the Board. A resolution to reappoint the auditors and to authorise the Directors to determine
their remuneration will be proposed at the Annual General Meeting of the company.
Approved by the Board of Directors on 30 June 2022 and signed on its behalf by:
Chair
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 120
26. Independent Auditor’s Report to the
Members of the Financial Reporting
Council Limited
Opinion on financial statements
ended 31 March 2022, which comprise the FRC’s:
• Balance Sheet as at 31 March 2022;
• Profit and Loss account; Statement of Changes in Equity; Cash Flow Statement for the year
then ended; and
• the related notes including the principal accounting policies.
The financial reporting framework that has been applied in the preparation of the financial
statements is applicable law and the United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice).
Basis for opinions
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 121
Framework of Authorities
Authorising
legislation
HM Treasury and
related authorities
Companies Act 2006
Statutory Audit and Third Country Auditor Regulations (SATCAR)
2013, 2016 and 2017
Local Audit (Delegation of Functions) and Statutory Audit
(Delegations of Functions) Order 2014
Local Audit and Accountability Act 2014
Managing Public Money
Cabinet Office Controls
Conclusions relating to going concern
In auditing the financial statements, I have concluded that the FRC’s use of the going concern
basis of accounting in the preparation of the financial statements is appropriate.
My evaluation of the director’s assessment of the entity’s ability to continue to adopt the
going concern basis of accounting included review of management forecasts and a signed
Letter of Support from the Department of Business, Energy & Industrial Strategy, confirming
that the Department would make appropriate financial resources available to support the
FRC with meeting its financial obligations as they fall due, should that be necessary.
Based on the work I have performed, I have not identified any material uncertainties relating
to events or conditions that, individually or collectively, may cast significant doubt on the
FRC’s ability to continue as a going concern for a period of at least twelve months from when
the financial statements are authorised for issue.
In relation to the entity's reporting on how they have applied the UK Corporate Governance
Code, I have nothing material to add or draw attention to in relation to the directors’
statement in the financial statements about whether the directors considered it appropriate
to adopt the going concern basis of accounting.
My responsibilities and the responsibilities of the directors with respect to going concern are
described in the relevant sections of this report.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 122
Overview of my audit approach
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 123
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 124
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 125
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 126
Application of materiality
Materiality
Performance materiality
I set performance materiality at a level lower than materiality to reduce the probability that,
in aggregate, uncorrected and undetected misstatements exceed the materiality for the
financial statements as a whole. Performance materiality was set at 72.25% of materiality for
the 2021/22 audit (2020/21: 72.25%). In determining materiality and performance materiality,
I have also considered the uncorrected misstatements identified in the previous period.
Other materiality considerations
As well as quantitative materiality there are certain matters that, by their very nature, would
if not corrected influence the decisions of users, for example any errors reported in the
Governance section of the Annual Report. Assessment of such matters would need to have
regard to the nature of the misstatement and the applicable legal and reporting framework,
as well as the size of the misstatement.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 127
I applied the same concept of materiality to my audit of regularity. In planning and
performing audit work in support of my opinion on regularity and evaluating the impact of
any irregular transactions, I took into account both quantitative and qualitative aspects that I
consider would reasonably influence the decisions of users of the financial statements.
Error reporting threshold
I agreed with the Audit and Risk Committee that I would report to it all uncorrected
misstatements identified through my audit in excess of £9,000, as well as differences below
this threshold that in my view warranted reporting on qualitative grounds. I also reported
to the Audit and Risk Committee on disclosure matters that I identified when assessing the
overall presentation of the financial statements.
Total unadjusted audit differences reported to the Audit and Risk Committee have increased
net expenditure by £98k.
Audit scope
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 128
Other information
The other information comprises information included in the Annual Report, but does
not include the financial statements, and my auditor’s report thereon. The directors are
responsible for the other information.
My opinion on the financial statements does not cover the other information and, except to
the extent otherwise explicitly stated in my report, I do not express any form of assurance
conclusion thereon.
In connection with my audit of the financial statements, my responsibility is to read the
other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or my knowledge obtained in the audit or
otherwise appears to be materially misstated.
If I identify such material inconsistencies or apparent material misstatements, I am required
to determine whether this gives rise to a material misstatement in the financial statements
themselves. If, based on the work I have performed, I conclude that there is a material
misstatement of this other information, I am required to report that fact.
I have nothing to report in this regard.
Opinion on other matters prescribed by the Companies Act 2006
In my opinion, the part of the section entitled Remuneration Framework in the Governance
section of the Annual Report to be audited has been properly prepared in accordance with
the Companies Act 2006.
In my opinion, based on the work undertaken in the course of the audit:
• the Strategic Report and the Directors’ Report have been prepared in accordance with
applicable legal requirements;
• the information given in the Strategic Report and the Directors’ Report for the financial
• the information about internal control and risk management systems in relation to
financial reporting processes, and about share capital structures, in compliance with rules
7.2.5 and 7.2.6 in the Disclosure Rules and Transparency Rules sourcebook made by the
Financial Conduct Authority (the FCA Rules), is consistent with the financial statements,
and has been prepared in accordance with applicable legal requirements; and
• information about the FRC’s corporate governance code and practices, and about its
administrative, management and supervisory bodies and their committees, complies with
rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 129
Corporate governance statement
The Listing Rules require me to review the directors' statement in relation to going concern
and that part of the Corporate Governance Statement relating to the FRC's compliance with
the provisions of the UK Corporate Governance Statement specified for my review.
Based on the work undertaken as part of my audit, I have concluded that each of the
following elements of the Corporate Governance Statement is materially consistent with the
financial statements or my knowledge obtained during the audit:
• Directors’ statement with regards the appropriateness of adopting the going concern
basis of accounting and any material uncertainties identified set out on page 116;
• Directors’ explanation as to its assessment of the entity’s prospects, the period this
assessment covers and why they period is appropriate set out on page 116;
• Directors’ statement on fair, balanced and understandable set out on page 115;
• Board’s confirmation that it has carried out a robust assessment of the emerging and
principal risks set out on pages 60-70;
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 130
• the section of the annual report that describes the review of effectiveness of risk
management and internal control systems set out on pages 60-70; and
• the section describing the work of the audit committee set out on pages 101-103.
Auditor’s responsibilities for the audit of the financial statements
My objectives are to obtain reasonable assurance about whether the financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue
a report that includes my opinion. Reasonable assurance is a high level of assurance but is
not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these financial statements.
Extent to which the audit was considered capable of detecting non-compliance with
laws and regulations including fraud
I design procedures in line with my responsibilities, outlined above, to detect material
misstatements in respect of non-compliance with laws and regulations, including fraud.
The extent to which my procedures are capable of detecting non-compliance with laws and
regulations, including fraud is detailed below.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 131
Identifying and assessing potential risks related to non-compliance with laws and
regulations, including fraud
In identifying and assessing risks of material misstatement in respect of non-compliance with
laws and regulations, including fraud, I considered the following:
• The nature of the sector, control environment and operational performance, including
the design of the FRC’s accounting policies, key performance indicators and performance
incentives.
• Inquiring of management, the FRC’s head of internal audit and those charged with
governance, including obtaining and reviewing supporting documentation relating to the
FRC’s policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations, and whether they were
aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of
any actual, suspected or alleged fraud; and
– the internal controls established to mitigate risks related to fraud or non-compliance
with laws and regulations, including the FRC’s controls relating to the FRC’s compliance
with the Companies Act 2006, Managing Public Money; and Cabinet Office Controls.
• Discussing among the engagement team and involving relevant internal specialists,
including IT Auditors, regarding how and where fraud might occur in the financial
statements and any potential indicators of fraud.
As a result of these procedures, I considered the opportunities and incentives that may exist
within the FRC for fraud and identified the greatest potential for fraud in the following areas:
revenue recognition, posting of unusual journals, complex transactions, bias in management
estimates. In common with all audits under ISAs (UK), I am also required to perform specific
procedures to respond to the risk of management override of controls.
I also obtained an understanding of the FRC’s framework of authority as well as other
legal and regulatory frameworks in which the FRC operates, focusing on those laws and
regulations that had a direct effect on material amounts and disclosures in the financial
statements or that had a fundamental effect on the operations of the FRC. The key laws
and regulations I considered in this context included Companies Act 2006, SATCAR 2013,
2016 and 2017; Local Audit (Delegation of Functions) and Statutory Audit (Delegation of
Functions) Order 2014; Local Audit and Accountability Act 2014; Managing Public Money,
employment law; pensions regulations and tax legislation.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 132
Audit response to identified risk
As a result of performing the above, the procedures I implemented to respond to identified
risks included the following:
• reviewing the financial statement disclosures and testing to supporting documentation
to assess compliance with provisions of relevant laws and regulations described above as
having direct effect on the financial statements;
• enquiring of management and the Audit and Risk Committee concerning actual and
potential litigation and claims;
• reading and reviewing minutes of meetings of those charged with governance and the
Board and internal audit reports;
• in addressing the risk of fraud through management override of controls, testing
the appropriateness of journal entries and other adjustments; assessing whether the
judgements made in making accounting estimates are indicative of a potential bias;
and evaluating the business rationale of any significant transactions that are unusual or
outside the normal course of business; and
• in addressing the risk of fraud through revenue recognition, substantively testing all
material revenue streams to check revenue has been recognised in line with accounting
policies; reviewing recognition and receivability of trade receivables and confirming all
income received was in line with relevant laws and regulations;
• considering the applicability of Managing Public Money and the Cabinet Office Controls
in all of my transaction testing.
I also communicated relevant identified laws and regulations and potential fraud risks to
all engagement team members, including internal specialists, and remained alert to any
indications of fraud or non-compliance with laws and regulations throughout the audit.
A further description of my responsibilities for the audit of the financial statements is located
on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of my report.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 133
Other auditor’s responsibilities
I am required to obtain evidence sufficient to give reasonable assurance that the income and
expenditure reported in the financial statements have been applied to the purposes intended
by Parliament and the financial transactions conform to the authorities which govern them.
I communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit and significant audit findings, including any significant
deficiencies in internal control that I identify during my audit.
For and on behalf of the
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 134
27. Financial Statements
The Financial Reporting Council Limited
Registered number: 02486368
Profit and Loss account for the year ended 31 March 2022
2021/22 2020/21
Note £’000 £’000
Revenue 2 46,854 38,034
Operating expenses 3 (45,524 ) (39,648 )
Operating profit/(loss) 1,330 (1,614 )
Interest receivable 0 0
Profit/(loss) on ordinary activities before taxation 1,330 (1,614 )
Tax on profit/(loss) on ordinary activities 4 0 0
Profit/(loss) for the Financial Year* 1,330 (1,614 )
* The FRC does not have any other activities that give rise to gains/losses etc.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 135
Balance Sheet as at 31 March 2022
31March 31March
2022 2021
Note £’000 £’000
Fixed assets
Intangible assets 7 60 31
Tangible assets 8 1,590 1,919
Current assets
Debtors 9 10,671 4,481
Cash at bank and in hand 10 14,520 15,579
Creditors – amounts falling due within one year 11 (9,691 ) (5,869 )
Net current assets 15,500 14,191
Total assets less current liabilities 17,150 16,141
Creditors – amounts falling due after more than one year 12 (655 ) (1,010 )
Provisions for liabilities 14 (331 ) (297 )
Net assets 16,164 14,834
Capital and reserves
Accounting, auditing and corporate governance:
– General reserve 5,914 5,118
– Corporate reporting review legal costs fund 2,000 2,000
Actuarial standards and regulation:
– General reserve 6,250 5,716
– Actuarial case costs fund 2,000 2,000
The financial statements and notes on pages 134–151 were approved by the Board of
Directors on 6 July 2022 and signed on its behalf by:
Chief Executive Officer and Accounting Officer
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 136
Statement of Changes in Equity for the year ended 31 March 2022
Accounting, auditing Actuarial standards
and corporate and regulation
governance
General Corporate General Actuarial Total
reserve reporting reserve case
review cost fund
legal cost
fund
£’000 £’000 £’000 £’000 £’000
At 31 March 2020 7,080 2,000 5,368 2,000 16,448
Profit for the year (1,962 ) - 348 - (1,614 )
At 31 March 2021 5,118 2,000 5,716 2,000 14,834
Profit for the year 796 534 - 1,330
At 31 March 2022 5,914 2,000 6,250 2,000 16,164
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 137
Cash Flow Statement for year ended 31 March 2022
2021/22 2020/21
Note £’000 £’000
Cash flows from operating activities
Operating Profit/(Loss) 1,330 (1,614 )
Adjustments for:
– Depreciation and amortisation 603 574
– Increase in dilapidation provision 34 34
– (Increase)/Decrease in trade and other debtors 9 (6,190 ) 2,163
– Increase/(Decrease) in trade and other creditors 11 3,467 (1,297 )
Net cash (out)/inflow from operations (756 ) (140 )
Corporation Tax paid 0 (7 )
Total cash inflow from operating activities (756 ) (147 )
Cash flows from investing activities
Purchase of tangible & intangible assets (303 ) (318 )
Total cash inflow from investing activities (303 ) (318 )
Foreign exchange translation adjustment 0 7
Net increase in cash and cash equivalents (1,059 ) (458 )
Cash and cash equivalents at 1 April 10 15,579 16,037
Cash and cash equivalents at 31 March 2022 10 14,520 15,579
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 138
28. Notes to the Financial Statements
1. Principal accounting policies
incorporated in the United Kingdom , and its registered office is 8th Floor , 125 London Wall ,
The following principal accounting policies are those policies which have been applied
consistently in dealing with transactions and balances that are considered material to the
FRC Group.
The directors have performed a going concern review considering income and costs, and the
Board are satisfied that the FRC will continue as a going concern for a period of not less than
12 months after the approval of these financial statements. Whilst performing their review,
the Board were also cognisant that BEIS have also provided a letter of financial support to
the Directors, confirming that they will provide funding such that the Company can meet its
liabilities as they fall due for a period of not less than 12 months from the date the financial
statements are approved.
a) Basis of preparation
The preparation of financial statements requires the use of estimates and assumptions that
affect the application of policies and reported amounts of assets and liabilities, income and
expenses. Although these estimates and associated assumptions are based on historical
experience and management’s best knowledge of current events and actions, the actual
results may ultimately differ from those estimates.
The estimates and underlying assumptions are reviewed on an on-going basis.
Provisions for dilapidations
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 139
In relation to the new lease taken at 1 Victoria Street, where part of the floorspace is being
used for the UKEB office, there is no specific requirement in the lease agreement to make
good at the end of the lease term. We are also not allowed to make any structural change to
the leased floorspace. As a result, we are not making any provision for dilapidations but are
making sure the place is kept clean and tidy during the leased period.
Presentation of financial statements
b) Consolidation
c) Revenue recognition
• Revenue is measured at the fair value of the consideration received or receivable.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 140
– Revenue receivable from the CCAB bodies is based on non-statutory arrangements
d) Tangible and intangible assets
Tangible assets
Office equipment 3 years
Fixtures, fittings & furniture Lease term
Leasehold improvements Lease term
Intangible assets
Capitalised software 3 years
e) Financial instruments
Cash and cash equivalents
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 141
f) Case costs and financial sanctions
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 142
Provision for dilapidations
Taxation
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 143
2. Revenue
2021/22 2020/21
£’000 £’000
For core operating costs
Preparers levy 18,306 15,407
Insurance and pension levies 2,591 1,910
Accountancy professional bodies 9,750 5,577
Actuarial profession 210 210
Publications 738 623
Other 244 175
Sub total 31,839 23,902
For Audit Quality Review
Accountancy professional bodies 10,700 9,936
Other income 1,686 1,294
Sub total 12,386 11,230
For accountancy disciplinary case costs
Accountancy professional bodies 10,100 9,156
less cost awards recovered (7,746) (6,564)
Sub total 2,354 2,592
For actuarial disciplinary case costs
Insurance and pension levies 1 79
Sub total 1 79
For taxonomies development
Various sponsors 274 231
Sub total 274 231
Total 46,854 38,034
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 144
3. Operating expenses
2021/22 2020/21
£’000 £’000
Core staff and related people costs (note 5) 34,659 29,233
IT and facility costs 3,583 2,781
Lease expense 840 815
Depreciation and amortisation costs 603 574
Auditor’s remuneration:
– audit 85 58
– non-audit services 0 0
Taxonomies Development costs 274 231
Accountancy and actuarial case costs – gross 10,101 9,235
– Less cost awards recovered (7,746 ) (6,564 )
Accountancy and actuarial case costs – net 2,355 2,671
Other operating expenses
– Travel and conferences 87 12
– Legal and professional fees 1,052 1,168
– Contribution to EFRAG (21 ) 254
– All other costs 2,007 1,851
Total operating expenses 45,524 39,648
4. Taxation
Corporation Tax at an effective rate of 19 % on interest income of £14 (2020/21: £76 ).
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 145
5. Staff and related people costs (including directors)
2021/22 2020/21
£’000 £’000
Permanent staff:
Salaries 28,735 24,126
Social security costs 3,460 2,879
Pension costs 2,864 2,279
Total permanent staff costs 35,059 29,284
Other people related costs:
Seconded staff and contractors 913 805
Fees paid to Board, Committee and Council members 849 873
Other costs 678 522
Total staff and related people costs 37,499 31,484
Staff costs transferred to cases (2,840) (2,251)
Total core staff and related people costs 34,659 29,233
2021/22 2020/21
Average no. of permanent staff employed 360 281
Directors’ emoluments
2021/22 2020/21
£’000 £’000
Fees (included in staff costs) 571 665
Other pension costs 33 33
Total directors emoluments (see page 47) 604 698
Social security costs 71 83
Details on the directors' emoluments are available in the Directors' Emoluments Report on
page 111.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 146
6. Financial risk management
Credit risk
Interest rate risk
Liquidity risk
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 147
7. Intangible assets
Software
£’000
Cost at 1 April 2021 123
Additions 59
Disposals 0
Cost at 31 March 2022 182
Amortisation at 1 April 2021 92
Disposals 0
Charge for year 30
Amortisation at 31 March 2022 122
Net book value at 31 March 2022 60
Net book value at 31 March 2021 31
8. Tangible assets
Leasehold Office Fixtures,
improvements equipment fittingsand
furniture Total
£’000 £’000 £’000 £’000
Cost at 1 April 2021 2,467 571 1,110 4,148
Additions 244 0 244
Disposals 0 0 0 0
Cost at 31 March 2022 2,467 815 1,110 4,392
Depreciation at 1 April 2021 1,547 370 312 2,229
Disposals 0 0 0 0
Charge for year 230 142 201 573
Depreciation at 31 March 2022 1,777 512 513 2,802
Net book value at 31 March 2022 690 303 597 1,590
Net book value at 31 March 2021 920 201 798 1,919
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 148
9. Debtors
2021/22 2020/21
£’000 £’000
Debtors 3,253 307
Prepayments 1,603 910
Accrued income 3,270 2,928
Enforcement sanctions 2,528 334
Other debtors 17 2
10. Cash and investments held
Cash Total Cash Total
2022 2022 2021 2021
£’000 £’000 £’000 £’000
Actuarial case cost fund 2,000 2,000 2,000 2,000
Corporate reporting review legal costs fund 2,000 2,000 2,000 2,000
General accounts 10,520 10,520 11,579 11,579
Totals at 31st March 2022 14,520 14,520 15,579 15,579
11. Creditors – amounts falling due within one year
2021/22 2020/21
£’000 £’000
Trade creditors 579 125
Other taxation and social security 1,215 961
Accruals 2,371 2,987
Deferred income 1,541 910
Deferred lease incentive 351 346
Enforcement fines and cost awards 3,438 334
Corporation Tax (note 4) 0 0
Other payables 196 206
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 149
12. Creditors – amounts falling due after more than one year
2021/22 2020/21
£’000 £’000
Deferred lease incentive 655 1,010
13. Significant transactions with other standard setters
With the agreement of HM Treasury, BEIS and the FCA, the FRC has, since 2008, taken the
responsibility for collecting the UK contribution to the International Accounting Standards
Board (IASB), alongside its preparer’s levy. The FRC makes a small charge for providing this
service. The amount of monies collected during the year was £884,000 (2020/21: £862,000),
of which £51,000 (2020/21: £26,000) remained to be paid over by the FRC to the IASB as at
31 March 2022.
14. Provisions for liabilities
2021/22 2020/21
£’000 £’000
Leasehold improvements and dilapidations
Balance at 01 April 2021 297 263
Amount charged to/(released from)Profit and Loss account 34 34
Balance at 31 March 2022 331 297
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 150
15. Commitments
Total commitments for the FRC under operating leases relating to the leasehold properties
were as follows:
2021/22 2020/21
Total Total
£’000 £’000
Payments due within one year 981 816
Payments due within two to five years 1,829 2,475
Payments due after more than five years 0 0
Total commitments for the FRC under operating leases for office equipment were as follows:
2021/22 2020/21
£’000 £’000
Payments due within one year 0 3
Payments due within two to five years 0 0
Payments due after more than five years
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 151
16. Related party transactions
Transactions with related parties
Any related party transactions arise in the normal course of business and are not material.
Total key management personnel compensation
2021/22 2020/21
£’000 £’000
Key management personnel
Fees & staff costs 1,570 1,313
Other pension costs 123 97
1,693 1,410
Social security costs 207 169
Key management personnel include 12 Board members and 8 ExCo members.
17. Subsidiary undertaking
The FRC has one subsidiary undertaking, UK Accounting Standards Endorsement
Its registered office is 8th Floor, 125 London Wall, London, United Kingdom, EC2Y 5AS.
It did not trade during the reporting period.
18. Liability of members
The members of the FRC have undertaken to contribute a sum not exceeding £1 each to
meet the liabilities of the Company if it should be wound up.
19. Controlling party
The ultimate controlling party is The Financial Reporting Council Limited , a company limited
by guarantee, incorporated in the United Kingdom with registration number 02486368.
The financial statements for the FRC Group were prepared by The FRC and may be obtained
from its registered address 8th Floor, 125 London Wall, London, EC2Y 5AS.
20. Contingent liability
Appendix
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 153
Report on the FRC’s Independent Oversight
of the UK Endorsement Board
1
Annual Report 2021/22
Our Responsibilities
The legislation delegating the Secretary of State’s powers to adopt International Financial
Reporting Standards in the UK,
2
to the UK Endorsement Board (UKEB) became effective on 22
May 2021. The FRC’s responsibilities for overseeing the UKEB’s compliance with due process,
is set out in the Memorandum of Understanding (MoU)
3
dated 22 May 2021 between the
Department for Business, Energy and Industrial Strategy (BEIS), FRC and UKEB, and became
effective from that date.
The MoU sets out the FRC’s oversight responsibilities, which include:
To review annually and provide constructive challenge and recommendations to the
UK Endorsement Board in connection with the UK Endorsement Board’s Due Process
Handbook, compliance with its operating and governance procedures, independence,
strategy and effectiveness.
Our independent oversight contributes to building public trust and confidence in the
activities and operation of the UKEB, in the public interest and for the benefit of stakeholders.
Accordingly, our oversight of UKEB’s governance and due process must be:
1. Independent of UKEB;
2. Free from conflicts of interest; and
3. Evidence based.
Robust governance and due process supports the UK Endorsement Board’s decision-making
and provides transparency and assurance for those stakeholders who rely on its work. Our
oversight regime, in turn, adds value for stakeholders, by providing independent assurance
over how UKEB operates in discharging what is an important public interest function. This
requires the FRC to access both public and private information produced by the UKEB.
We have sought to define what our oversight of governance and due process should
encompass and have developed procedures to govern how we go about discharging it
in the public interest and in a proportionate way. It includes:
i. taking a view on the adequacy of the UKEB’s governance and due process arrangements;
ii. assessing whether the UKEB has complied with its governance and the Due Process
Handbook in the discharge of its responsibilities; and
iii. raising with the UKEB areas for improvement.
1 Please note that this Appendix was not reviewed for the purposes of the audit opinion on pages 120-133.
2 As developed by the International Accounting Standards Board.
3 Link to Memorandum of Understanding.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 154
Our oversight assesses the degree to which UKEB is discharging its functions in accordance
with its guiding principles.
4
Where we find scope for improvement, the FRC can make
recommendations to UKEB. The FRC has no authority to direct the UKEB to make
changes, however it can notify the Secretary of State when the FRC has made an oversight
recommendation and considers that the UKEB’s response is inadequate.
Our Focus
During the year, both UKEB and the FRC focused on establishing our respective policies,
processes and procedures. This has formed a significant part of our oversight activity to
31 March 2022. We have established an oversight programme that includes a combination
of thematic and project-specific oversight activity, selected on the basis of risk. We have
developed information requests and monitoring frameworks to underpin an assessment
of UKEB’s broader governance and processes against its terms of reference, thematic and
project-specific reviews.
We concentrated our oversight in 2021/2022 primarily on:
i. providing feedback to UKEB on the development and content of the Due Process
Handbook;
ii. assessing UKEB’s governance and processes against its terms of reference;
iii. a review of UKEB’s first endorsement and adoption decision on the May 2020 narrow-
scope amendments; and
iv. a thematic review of all comment periods set by UKEB since 22 May 2021.
5
Our feedback was intended to help UKEB strengthen the Due Process Handbook and
supporting processes. For example, we provided input to UKEB on the need for the Due
Process Handbook to set appropriate standard comment periods and require any deviation
to be justified by UKEB. We also recommended that the Due Process Handbook clearly set
out which due process steps are mandatory, and which are optional.
Our Assessment
We note the contents of the UKEB’s report to the FRC in respect of its governance and due
process. At the end of the reporting period to 31 March 2022, we are not able to formally
conclude on the effectiveness of UKEB’s governance and due process, which is still under
development. The lack of a Due Process Handbook has, understandably, made it difficult
to assess UKEB’s activities against an established benchmark, and in the absence of that
Handbook, UKEB has had an iterative approach to due process matters and its governance
is still evolving.
4 Accountability; independence; transparency; and thought leadership.
5 As there are no standard comment periods currently in place, our review examined the rationale for the comment period
selected, factors taken into account by UKEB in setting comment periods, resourcing levels, project prioritisation, project
timelines, and lessons learned.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 155
Our key findings and observations are summarised below.
Approach to governance and due process
The UKEB has made considerable progress during the year in establishing its overarching
policies and procedures, and how it complied with many of the provisions in its terms of
reference. Where specific gaps were identified, these have been addressed quickly. The
fact that the UKEB was able to achieve this at the same time as developing its approach to
endorse IFRS 17 – Insurance Contracts, which is one of the most significant and challenging
developments in financial reporting standard setting in recent years, is creditable.
UKEB members are understandably engaged and challenging on technical issues relating
to their endorsement work. In terms of governance and due process, its main focus during
the reporting period was developing and testing its due process to support issuing the
draft Due Process Handbook. It adopted an iterative approach, which is understandable for
an organisation in set-up phase. We have not found evidence that the Board discussed or
adopted a standardised approach to due process in the absence of a Due Process Handbook,
and our expectation is that the UKEB will adopt a more consistent approach going forward.
Project management and prioritisation
There has been some slippage in project timetables, which has delayed the outcome of some
projects being made available to stakeholders. Board papers and public meetings provide
only limited explanation for this.
Accountability
UKEB’s first adoption decision was not completed prior to the amendments to the relevant
standards taking effect. We have not been able to determine whether the delay was
unavoidable or that completion of the adoption was sufficiently prioritised.
We have not consistently been able to find in UKEB’s public papers and meetings
explanations for the approach taken for key matters of due process, such as the variation
in comment periods, timetable slippage, and resourcing decisions.
Transparency
We have not been able to determine, based on the public information available to us, who
has responsibility for certain decisions, how and why some decisions are taken, and whether
there is appropriate Board oversight. For instance, decisions to extend the consultation
deadline on the adoption of the May 2020 narrow-scope amendments were not made in
the public meeting. The absence of information on the UKEB website to inform stakeholders
about the delays to their adoption meant stakeholders would not have known when to
expect the adoption.
Similarly, it is not clear what criteria are used to determine what will be discussed by
the Board in private rather than public session, with a risk that important public interest
discussions are held in private.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 156
Our Recommendations
In light of the above findings and pursuant to provision 4.2(e) of the MoU, the FRC Board
makes the following recommendations to the UKEB:
1. That a proposed timetable for endorsement and any changes to that timetable are
communicated to stakeholders, and adoption decisions are completed in a timely fashion,
once UKEB has resolved the technical issues to its satisfaction.
2. That due process includes: (i) effective monitoring by the Board of project planning and
progress on a consistent basis; (ii) explanations for project resourcing and the impact of
prioritisation decisions; and (iii) consistently providing explanations to support stakeholder
understanding of decisions taken by the Board and the progress of its important public
interest work.
3. At each public Board meeting, the Board should be provided with an update on significant
developments that have happened between public meetings.
4. Provide the FRC with explanations and supporting documentation to address oversight
questions as we build our understanding of the way the UKEB operates.
5. Publish a policy setting out what can be discussed and/or decided by the Board in private
session, or through informal written procedure and what can only be done in a public
meeting.
FRC | Annual Report and Financial Statements for the Year Ended 31 March 2022 157
E 02754187
ISBN 978-1-5286-3398-7
The FRC does not accept any liability to any party for any loss, damage or costs, however
arising, whether directly or indirectly, whether in contract, tort or otherwise from action or
decision taken (or not taken) as a result of any person relying on or otherwise using this
document or arising from any omission from it.
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