The Financial Reporting Council (FRC), the UK’s unified, independent regulator for corporate reporting and governance, has today published its Regulatory Strategy and its Plan & Budget for 2005/06.

The FRC took on significant additional responsibilities on 1 April 2004 as recommended in the Government’s reviews of the regulatory regime following the Enron and WorldCom scandals in the US.  The FRC’s functions are exercised by its five operating bodies and by its Council.

Since 1 April the FRC has made substantial progress in implementing the new regime.  Activities started in 2004 include: the Financial Reporting Review Panel is reviewing accounts on a pro-active, as opposed to its previous complaints-driven, basis; the Professional Oversight Board for Accountancy has established an Audit Inspection Unit which is reviewing the work of auditors of public interest companies; the Auditing Practices Board has issued Ethical Standards for auditors; the Accountancy Investigation and Discipline Board has taken on its first case (Mayflower); and the Accounting Standards Board has issued a draft reporting standard on the Operating and Financial Review.

The Regulatory Strategy explains that the FRC’s aim is:

“To promote confidence in corporate reporting and governance.”

The Strategy sets out the FRC’s key objectives, which are to promote high quality corporate reporting and auditing, high standards of corporate governance and the integrity, competence and transparency of the accountancy profession.

The FRC will follow the Better Regulation Task Force principles which require regulators to be proportionate, targeted, consistent, transparent and accountable.  It is

 helped in this approach by the involvement of a wide range of business, investor, professional and other interests as members of its Council and its operating bodies. 

FRC Chairman, Sir Bryan Nicholson said:

“The FRC believes in wealth creation.  We believe that our role in promoting confidence in corporate reporting and governance can make the creation of wealth more likely.”

“We believe that regulators are most effective when they command support in the communities whose activities they affect.  The publication of our Regulatory Strategy, which explains our approach to our work, is intended to re-inforce the support which we already have in the business, investor and professional communities.”

The Plan & Budget sets out the major activities and projects which the FRC proposes to carry out in 2005/06.

The introduction in 2005 of international accounting standards, the Operating and Financial Review and revised auditing standards means that those involved in corporate reporting and governance are facing a period of significant change and a heavier-than-usual workload.  

In recognition of this the FRC is not proposing any major new policy initiatives for 2005/06.  It will focus on completing those projects which are already underway and on making further progress in implementing the additional responsibilities it has been given.  Those activities include:

·         increasing the pro-active enforcement of accounting standards

·         broadening the coverage of our independent inspection of audits

·         updating the Turnbull Guidance on internal control

·         issuing a reporting standard for the Operating & Financial Review

·         reviewing the implementation of the revised Combined Code on Corporate Governance

The FRC will also actively engage in influencing corporate reporting and governance proposals from the EU and other international organisations, with the aim of ensuring that they add to confidence without creating disproportionate burdens on business.

The FRC has set a budget for core operating costs in 2005/06 which, at £10.3m, is flat in cash terms compared to its original budget for 2004/05 which was published in December 2003. 

The FRC has confirmed that it will change the basis of its levy on listed companies to market capitalisation, which is fairer than the current two-tier basis.  It will publish details of the proposed levy towards the end of January and the new levy will come into effect from April 2005.

FRC Chief Executive, Paul Boyle, said:

“The FRC is very conscious that 2005 is a year of major change for many companies, shareholders and auditors.  We have taken this into account in our plans for 2005/06.”

“Our priorities are intended to re-inforce confidence in corporate reporting and governance in the UK by improving the information available to market participants.”

Both the Strategy and the Plan & Budget for 2005/06 are available on the FRC’s website at: www.frc.org.uk.  The FRC welcomes comments on either document.  It would be helpful if comments on the Plan & Budget could reach us by 28 February 2005.

1. The Financial Reporting Council (FRC) is a unified, independent regulator.  Its aim is to promote confidence in corporate reporting and governance.  The FRC’s five operating bodies are: the Accounting Standards Board, the Auditing Practices Board, the Financial Reporting Review Panel, the Accountancy Discipline and Investigation Board and the Professional Oversight Board for Accountancy.  The Council is responsible for the FRC’s work on corporate governance and is assisted by a Committee on Corporate Governance, whose members are drawn from the Council.
   
2. The FRC was established in 1990 to promote good financial reporting.  Following the collapses of Enron and WorldCom in the US, the UK government commissioned two wide-ranging reviews which recognised the importance of reassuring the markets and the public at large that UK corporate reporting and governance frameworks were sufficiently robust.
   
3. In January 2003, the Secretary of State for Trade and Industry announced a package of reforms to raise standards of corporate governance, strengthen the accountancy and audit professions, and provide for an independent system of regulation for those professions.  The FRC was given a central role in delivering these reforms. The Government recognised the FRC’s success in promoting high standards of financial reporting, and its credibility with the financial, business and accountancy professional communities.
   
4. The FRC is funded by the UK government, the accounting profession and by business.  Details on its approach to managing our costs and the way in which it is funded are contained in its Financial Management and Reporting Framework, which is set out in Annex D of its Regulatory Strategy.

For further information contact Paul Boyle, Chief Executive 020 7492 2390.