The Financial Reporting Council (FRC) has today published for consultation a paper setting out its proposed priorities and its funding proposals for 2009/10. The paper 'Draft Plan 2009/10, Proposed Updates to the Strategic Framework and 2009/10 Levy Proposals' is available on the FRC website at http://www.frc.org.uk/about/plans.cfm. Responses are requested by 13 March 2009.
FRC Chair, Sir Christopher Hogg, said:
“The profound effects of the credit crunch are now challenging everyone to re-examine their assumptions about what works and what doesn’t. The FRC in the Plan period will be giving priority to reviewing in the light of the present crisis the impact of its standards in corporate reporting and governance. It believes them for the most part to have provided good and appropriate guidance and it will continue to give advice to practitioners about how they may best be applied under current circumstances. But it will also actively consider what changes with regard to any of its standards might enhance effectiveness in the longer term.”
The FRC believes that its Strategic Framework continues to provide an appropriate structure for its work, while allowing flexibility to respond to the rapidly changing environment. It is proposing a small number of amendments to enhance the clarity and consistency of the Framework and further embed the principles of good regulation.
In preparing its draft Plan, the FRC has sought to take into consideration both the impact of current economic conditions and the medium-term issues affecting corporate reporting and governance, recognising the uncertainty in both the short and medium term. The draft Plan gives its stakeholders the opportunity to comment on the necessarily provisional judgments the FRC has made about its priorities for 2009/10 and on its medium-term priorities.
FRC Chief Executive, Paul Boyle said:
“We recognise the challenges all those involved in corporate reporting and governance face at present. Our draft Plan will give our stakeholders the opportunity to comment on the judgements we have made about the response to those challenges in setting our priorities for 2009/10.
As part of our work to promote high standards of corporate reporting and governance in the UK, we have already issued updates for audit committees, preparers and actuaries on the key questions they may need to address. We will remain alert to the need to issue further updates in the light of market developments.”
Major activities and projects
The draft Plan explains that the FRC will continue to:
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Review and raise awareness of the risks in relation to governance, reporting, auditing and actuarial practice.
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Review market practices – focusing on the accounts provided by companies in the banking, retail, leisure and travel, commercial property and house building sectors, and the quality of audits of publicly traded and other major public interest entities.
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Take enforcement action where appropriate, noting that there may be more investigations and cases arising from the impact of tougher market conditions.
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At the international level, influence legislators and standard-setters, and promote co-operation amongst regulatory authorities.
The FRC will continue to influence the development of IFRS during a period when a number of key standards are likely to be scheduled for agreement. It will review the use of fair values with a view to influencing the debate. It will also continue its work on choice in the UK audit market, including monitoring the implementation of the recommendations of the Market Participants’ Group, and will consider the need for further action aimed at enhancing the resilience of the audit market.
Expenditure and funding
The FRC proposes to operate at approximately the same staffing level (just over 90 staff) as in 2008/09. Core operating costs for accounting, auditing and corporate governance are budgeted to increase by 7%, to £12.7m, in 2009/10, including a higher than normal contingency allowance. For actuarial standards and regulation, core operating costs are projected to increase by 4%, to £2.3m.
The FRC has increased its allowance for disciplinary case costs in 2009/10 based on a provisional estimate in relation to cases which have already been formally initiated. If further cases arise additional costs may be incurred. Accountancy case costs will be paid for by the relevant accountancy professional bodies. Taking these allowances into account, the FRC’s projected overall costs increase by 11%.
Levy proposals 2009/10
The FRC’s levy proposals for accounting, auditing and corporate governance for 2009/10 are consistent with the new funding arrangements which it has put in place following the Government’s decision to withdraw its contribution to the FRC’s costs. Those companies which paid the levy in 2008/09 will pay, on average, 9% more in cash terms although there is a potentially wide range of increases or decreases for individual companies as the levy is related to market capitalisation. As previously announced, the levy will be extended for the first time to large private companies and public sector organisations.
The FRC’s levy proposals for actuarial standards and regulation involve an increase in the pension levy to £3.10 per 100 members compared to £2.90 per 100 members in 2008/09. The insurance levy is set as a small percentage of the FSA regulatory fees (1.7% in 2008/09). The FRC will not be in a position to confirm this percentage until the FSA has announced its fee proposals for 2009/10.
The FRC will finalise in April 2009 its 2009/10 Plan and levy proposals, taking account of the responses to its consultation paper.
