The Financial Reporting Council (FRC) has today published for comment its Draft Plan & Budget for 2008/09.
The FRC’s proposed priorities for 2008/09 are based on its assessment of the risks to confidence in corporate reporting and governance. The draft Plan identifies that there are potentially a number of major risks, including the possible impact of credit market turbulence and the impact on the UK audit market if one of the “Big Four” auditing firms withdraws from the market.
The FRC is seeking to engage investors, companies, professional bodies and other stakeholders in the process of finalising the Plan & Budget.
FRC Chair, Sir Christopher Hogg, said:
“Confidence in the quality of corporate reporting and governance in the UK contributes to the economy overall and to the UK’s competitiveness in international markets. Our assessment is that confidence remains high, but there is no room for complacency. Our Draft Plan & Budget for 2008/09 identifies a number of areas where we will need to work with our stakeholders to ensure that the major risks to confidence are identified and addressed.”
Major activities
The four key themes of the FRC’s proposed work programme for 2008/09 are a continuation of those pursued in 2007/08:
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Lead public debate in the UK on the major issues affecting future confidence in corporate reporting and governance.
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Monitor corporate reporting and governance practices in the UK and take enforcement action where appropriate.
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Increase participation in the development of high-quality international standards and cooperation with international regulatory organisations.
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Contribute to modifying the UK regulatory regime to take account of changes in EU and UK legislation.
Among the major projects the FRC plans to undertake in 2008/09 are:
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Monitor the implementation of the recommendations made by the Market Participants’ Group on choice in the audit market. The FRC’s audit choice project has stimulated discussion in the UK and internationally about critical issues associated with the audit market. The FRC has set out a detailed plan for monitoring progress in the implementation of the recommendations of the Audit Choice Market Participants’ Group.
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Review the complexity and relevance of current reporting requirements. The project will consider whether corporate reporting requirements are contributing to the increasing complexity of corporate reports without making them more useful or understandable. The scope of the project will include requirements relating to financial statements, accompanying management commentary and other reports.
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Implement the provisions of the EU Directive on Statutory Audit relevant to foreign auditors. The project will implement the relevant procedures which will enable the UK to comply with the Directive. The implementation of these provisions will be heavily influenced by decisions made by the EU.
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Finalise the conceptual framework for actuarial standards. Following the consultation being undertaken in 2007/08, a principles-based conceptual framework will be issued that will contribute to the relevance, transparency of assumptions, completeness and comprehensibility of actuarial information and advice.
The FRC is keeping under review relevant aspects of current credit market conditions to ensure that, in the short term, its monitoring activity is appropriately targeted and, more generally, that the standards it defines remain appropriate. The FRC will reflect these, and other relevant issues, when it finalises its Plan in April.
The draft Plan highlights that even after the completion of FRC’s proposed work programme there could continue to be significant concerns arising from the high degree of concentration in the market for audit services in the UK.
Proposed budget
Additional responsibilities and the continuing need to influence, at UK, EU and international levels, initiatives with important implications for corporate reporting and governance in the UK have resulted in upward pressures on the FRC’s costs.
The FRC’s proposed Budget will result in an increase of 9% in its core operating costs in relation to corporate governance, reporting and accounting to £11.9m compared to £10.9m in 2007/08; and an increase of 22% (from a small base) in core operating costs for actuarial standards and regulation to £2.2m compared to £1.8m in 2007/08.
Stakeholders are invited to submit comments on the Draft Plan & Budget by 14 March 2008. The FRC will take careful account of all views submitted, and expects to publish the final Plan & Budget 2008/09 in April 2008, together with a summary of the feedback received.
The FRC will consult on the details of its funding proposals for 2008/09 in February 2008.
Paul Boyle, FRC Chief Executive, said:
“This year we have significantly amended our approach to explaining our priorities, based on the Strategic Framework we developed in 2007 in consultation with our stakeholders. We believe that our effectiveness and accountability will be enhanced if we set out as clearly as possible the basis for the judgements we have made in developing our draft Plan.
We believe that the draft Plan represents a carefully targeted and proportionate contribution to addressing the risks we have identified but we value the views of our stakeholders and will finalise the Plan in the light of the feedback we receive.”
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