The Financial Reporting Council today publishes proposals for a new basis for funding its responsibilities for accounting, auditing and corporate governance.

The need for new funding arrangements follows the Government’s announcement in February 2008 that these costs should in future be funded largely by market participants. At present, the Government pays about a third of these costs, approximately £3.5m a year.

The FRC is requesting comments on its proposals by 5 September. It will consult on detailed proposals for its future funding arrangements in the autumn.

The FRC believes that the principle on which its funding should be based is that its costs should be met by the major groups of market participants which are subject to, or have regard to, the regulatory requirements which it sets, influences, monitors or enforces.

The FRC intends to replace the Government grant through a combination of extending the groups of market participants which contribute to its costs and increasing the contribution from existing contributors.

The FRC has identified two groups - large private companies and public sector organisations - which are subject to, or have regard to, its regulatory requirements which do not contribute to its costs and which it believes should in future be asked to do so.

The FRC has estimated the size of the contribution from these two groups if they were subject to its levy on publicly traded companies, basing the contributions from private companies on turnover, and from public sector organisations on expenditure. It has applied discounts to both groups to reflect the fact that not all its regulatory activities apply to them. For private sector companies, it proposes a 50% discount; for public sector organisations, 75% (reflecting the fact the FRC is not responsible for setting public sector accounting and audit standards, but in setting these standards, the public sector has regard to FRC standards).

On the basis of its 2008/09 budget of £11.9m for its core activities in relation to accounting, auditing and corporate governance, the FRC estimates that this approach would result in private companies contributing 11% of its funding (£1.3m) and public sector organisations 5% (£0.5m). The two existing groups would see their shares rise to 42% each.

The FRC is consulting now on the principles on which its funding should be based and on its preliminary views on how it proposes to implement those principles. In the light of the responses to this consultation, the FRC will carry out further analysis and refine the calculations. It will then issue a second consultation on its final proposals.

Although there are existing powers for the FRC’s funding to be put on a statutory basis, it intends to continue to raise its funds on a non-statutory basis based on the widespread support in the business, investor and professional communities for its work.

FRC Chief Executive, Paul Boyle, said:

“The Government has asked us to consult market participants on a new basis for funding our core responsibilities in relation to accounting, auditing and corporate governance, following its announcement in February 2008 that it will withdraw its annual grant to the FRC.

We believe that our proposals will provide a fair, cost-effective and stable basis for us to raise the funds we require. We will consult further on our detailed proposals in autumn 2008.”

1. The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance.
2. The FRC’s functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy and Actuarial Discipline Board) and by the FRC Board. The Committee on Corporate Governance assists the Board in its work on corporate governance.
3. The proposals for new funding arrangements apply only to the costs of the FRC’s responsibilities in relation to accounting, auditing and corporate governance. No changes are proposed to current arrangements for funding audit inspection or accountancy disciplinary case costs, which are entirely funded by the accountancy professional bodies, nor for our responsibilities for actuarial standards and regulation, which are funded by insurance companies, pension schemes (including public sector schemes) and the actuarial professional bodies.
4. The full consultation paper on the proposals can be found on the FRC website at http://www.frc.org.uk/about/funding.cfm. The FRC welcomes feedback by 5 September 2008 on the proposals. Submissions should be sent to David Andrews, Policy and Planning Manager, on 020 7492 2382 (E-mail: d.andrews@frc.org.uk).
5. All press enquiries should be addressed to David Andrews, Policy and Planning Manager, on 020 7492 2382 (E-mail: d.andrews@frc.org.uk).