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FRC Annual Report and Accounts 2022/23

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ISBN 978-1-5286-4136-4

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Strategic Report

Low-angle view of two modern high-rise buildings with glass facades and reflections against a clear blue sky.

1. Our Purpose

The purpose of the Financial Reporting Council 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

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.

Our remit

We regulate:

Publicly listed companies by providing standards, best practice guidance, corporate reporting and the UK Corporate Governance Code.

Institutional investors through the Stewardship Code.

Auditors, actuaries and accountants' compliance with professional standards and UK Generally Accepted Accounting Practice (UK GAAP).

Relevant professional bodies by supervising, for example, the Institute of Chartered Accountants in England and Wales (ICAEW), the Association of Chartered Certified Accountants (ACCA), the Institute and Faculty of Actuaries (IFOA), Chartered Global Management Accountant (CGMA) and the Institute of Chartered Accountants of Scotland (ICAS).

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.

2. 2022/23 highlights

April

Publication of the FRC 3-Year Plan 2022-25
Publication of the Audit Firm Governance Code

May

Thematic Review of Discount Rates

June

Guidance on the Strategic Report
Responses to the International Sustainability Standards Board (ISSB) on International Financial Reporting Standards (IFRS) S1 and S2 exposure drafts
Guidance on professional judgement
Joint Forum on Actuarial Regulation (JFAR) report, The Science of Climate Change

July

Research study on the influence of the Stewardship Code on practice and reporting
Our Position Paper following the Government Response to the 2021 White Paper
Annual Audit Quality Inspection (AQI) results
Annual Report and Accounts 2021/22
Annual Enforcement Review (AER)

August

FRC Lab reports on digital security risk disclosure and Environmental, Social and Governance (ESG) data production
Key facts and trends in the Accountancy profession
Auditor reporting: a review of current practice

September

Stewardship Code signatory list update
FRC Lab report on structured digital reporting
Research on navigating barriers to senior leadership for people from minority ethnic groups in FTSE 100 and FTSE 250 companies

October

FRC Lab report on net zero disclosures
Annual review of corporate reporting 2021/22
AQI results of major local audits

November

Review of Corporate Governance Reporting 2022
Professional oversight report 2022
What Makes a Good... Environment for Auditor Scepticism and Challenge

January

ESG Statement of Intent: What's Next?

February

Stewardship Code signatory list update
Thematic Review: IFRS 9 Banking Audit Methodology and its Application

March

Technical Actuarial Standards (TAS) 100 final standard
Draft 3-Year Plan 2023-26
Our Approach to Audit Supervision

3. Statement by the Chair of the FRC

I am pleased to present the Financial Reporting Council's 2022/23 Annual Report and Accounts. Over the course of the year, we have made significant progress both in our governance as an organisation and in our continued work to raise standards of audit quality, corporate reporting and governance to the benefit of all of our stakeholders.

When taking on the role of Chair in February 2022, four new Non-Executive Directors (NEDs) also joined us, making a significant contribution to a revitalised, expert Board. That allowed us to restructure our five Board committees, and with the insights and experience we have all gained over the last year, I am pleased to report that the governance of the FRC is today in good and settled hands.

Our Transformation Programme, in preparation for the long-awaited legislation to create the Audit, Reporting and Governance Authority (ARGA), continues at pace, and we have reached a significant number of new milestones during the year. Like many of our stakeholders, we too are frustrated at the number of delays to the required legislation being tabled in Parliament and hope that this will happen as expected later this year. The FRC is a vastly different regulator to that of four years ago, and it has been pleasing to hear from our stakeholders that our role as an assertive regulator is having the impact and influence that we consistently aim for. There's a lot for us to be proud of as an organisation. But there's still a lot to be done.

Since our last Annual Report and Accounts, we have seen the publication of the Government Response by the Department for Business, Energy and Industrial Strategy (BEIS), now the Department for Business and Trade (DBT). This marked a key milestone in our journey towards ARGA and provided us with a clear roadmap from which we outlined an extensive workplan in response to the proposals taken forward from the 2021 White Paper, Restoring trust in audit and corporate governance. As we await the legislation to create ARGA, the work outlined in our Position Paper published in July 2022 will continue to support financial stability and high standards in corporate Britain, helping to underpin the UK's position as a key investment destination.

After serving with distinction as a Director since 2015, John Coomber, our Senior Independent Director, will be standing down in July when his mandate expires. I want to thank him for his valuable contribution to the organisation over the last eight years, in particular recognising that during a time of tremendous change in the Board, he provided essential continuity and support to the Board and the wider organisation. John will be succeeded as Senior Independent Director by Clare Thompson, and as Chair of the Supervision Committee by Ruwan Weerasekera.

Portrait of Sir Jan du Plessis.

Sir Jan du Plessis Chair

"The Government Response marked a key milestone in our journey towards ARGA"

In February, we announced Sir Jonathan Thompson's resignation as Chief Executive Officer (CEO), in order to take on the role as Chair of HS2. I would like to express my sincere gratitude to him for all he has achieved at the FRC over his almost four years here. The organisation I chair today is unrecognisable compared to that which Jon joined in 2019, not least of all because of his leadership in transforming the FRC into a modern, more assertive regulator with impact and influence. We are all grateful for his work and achievements over the last four years. I am confident that the FRC is now well-placed to continue this work as we jump the remaining hurdles to become ARGA.

Jon is working out his notice period until 31 July 2023 on a part-time basis and, working with DBT, we are conducting an extensive search for his successor.

In order to provide further support to Jon and the wider organisation during this transition period, Sarah Rapson has taken on the role of Deputy Chief Executive, in addition to her ongoing role as Executive Director of Supervision. I am pleased to report that she has taken on these additional responsibilities with great energy and enthusiasm.

We must continue our whole system approach to reform to deliver the best results, and that includes legislation. We have seen significant progress on audit quality, but that needs to be universal across all audit firms to deliver the best outcomes. It is of utmost importance that we see the dedication to this work continue as we keep on holding firms to these high standards, encouraging them to do the best for their stakeholders.

Our work as an improvement regulator also continues across the board, recognised in our highlights from the last year, and continuing in the next with major consultations such as the Corporate Governance Code review, beginning in May. Our work will maintain the highest possible standards for audit and corporate governance.

Finally, I need to acknowledge the incredibly important work of our ever-growing workforce at the FRC. I wish to thank them all for their hard work, commitment and professionalism as we continue on our exciting and important journey towards ARGA. I have no doubt that, as the FRC, we will continue to deliver on the expectations of our many stakeholders and that, when we become ARGA, we will step up to the plate, confident in the knowledge that we are well qualified for the job at hand.

Signature of J. M. R... (surname partially illegible).

Sir Jan du Plessis Chair

"We will continue to deliver on the expectations of our stakeholders"

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 52.

A circular diagram illustrating the FRC's approach to building trust and achieving better outcomes for all stakeholders. The central theme is "Better outcomes for all stakeholders". Surrounding this, key elements include:

Strong independent regulator underpinning the system
Rigorous audit
Engaged investors
Better reporting quality
Better governance
Acting in the public interest
Market confidence

5. Our business model

What kind of regulator is the FRC and will ARGA be in future?

The now integrated four faces of regulation, first introduced in our 2022-25 3-Year Plan, demonstrate how the FRC, and in the future ARGA, will regulate. As part of our work as an improvement regulator, the four faces provide a balanced yet assertive approach and allow us to maintain alignment with our core purpose: 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.

A diagram illustrating "The Four Faces" of regulation:

System Partner: Educating, collaborating, and supporting continuous improvement
Facilitator: Encouraging good practice through structured engagement
Supervisor: Supervision and monitoring of requirements, culture and behaviours
Enforcer: Investigating conduct and applying proportionate sanctions and directions

What we do

Regulatory Standards

Lead the development of public and technical policy, informed by influential stakeholder engagement.
Set Codes, standards and guidance that support high-quality corporate reporting, corporate governance, and stewardship, audit, and actuarial work.
Drive innovation in the public interest for our stakeholders.
Influence international standard setting and collaborate with other regulators.

Supervision

Deliver our statutory responsibilities for corporate reporting review and act 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 improvement and innovation in corporate reporting and audit.
Promote a more resilient audit market.

Enforcement

Drive the application of high standards in corporate reporting, audit 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.

Corporate Services

Support the regulatory divisions by providing a robust and resilient framework and expert support for the delivery of the FRC's wider objectives.
Support the FRC's ongoing work as an improvement regulator by acting as a trusted partner and adviser to the business, and through our ongoing partnership with DBT.

Our Values

Our Values are divided into four key areas:

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.
Fair Our people act in a professional, proportionate, consistent manner to ensure robust standards of decision-making and delivery, both internally and externally.
Effective Our people are decisive, accountable and collaborative when working with others to share information and experiences to improve outcomes.
Independent Our people challenge ideas, make evidence-based decisions and always act with integrity.

6. Chief Executive's report

I am pleased to report that this year has seen further momentum on delivery of all aspects of the FRC's strategy and remit. As an organisation, we have continued to focus on delivering our purpose while being an improvement regulator, modelled on the four faces approach to regulation we first introduced in our 2022-25 3-Year Plan.

Our journey to become ARGA has continued as we have progressed well beyond the recommendations of the three independent reviews and implemented many without legislative backing. It has been somewhat frustrating that legislation has not yet been passed more than four years after Kingman, and we continue to work with Government on preparing the legislation for when parliamentary time allows. The work laid out as part of the Government's response to the White Paper, Restoring trust in audit and corporate governance, continues at pace as many of the Transformation Programme workstreams become part of the FRC's business as usual on a voluntary or negotiated basis.

The ongoing Corporate Governance Code consultation, the introduction of our Scalebox and Audit Sandbox initiatives, and our work on actuarial policy and local audit demonstrate our ongoing drive to changes we can make using our existing powers and remit while we wait for the crucial legislation needed to fully implement reform. These have built on our new approach to supervising audit firms and a stream of 'What Makes a Good...' publications to help those we regulate to learn from each other and best practice.

Our work over the last year has seen some essential next steps to protect and advance the interests of our stakeholders, including:

The Corporate Governance Code consultation starting in May, looking at how we can best improve the Code and incorporate elements of the Government Response of May 2022, particularly around internal controls and assurance frameworks.
'Audit Committees and the External Audit: Minimum Standard', designed to increase performance across Audit Committees in the FTSE 350, ensuring a consistent approach and supporting a well-functioning audit market.
The introduction of a Memorandum of Understanding (MoU) with the Department for Levelling Up, Housing and Communities (DLUHC), allowing us to take on the role of shadow system leader for local audit until ARGA is introduced via legislation.

Sir Jonathan Thompson Chief Executive Officer and Accounting Officer

The ARGA funding model, considering how the new regulator will be funded on a statutory basis to allow it to continue to play a crucial role in the UK framework for corporate governance, corporate reporting, audit, accountancy and actuarial work. As well as this, we have also been working with Government to consider our next steps as an organisation in relation to location. When the decision was made to create ARGA, the Government outlined that its headquarters should sit outside of London and the South-East, in accordance with Government policy on levelling up and providing opportunity across the UK. The location for our future headquarters has been identified as Birmingham. Decision-making around timing is ongoing and we will update stakeholders of the outcomes of these discussions. At the same time, we have also been reviewing the location of our London office as our lease at 125 London Wall comes towards its end in

Regardless of a second location, it is critical that we retain a London presence given the location of a majority of our stakeholders.

While I am now moving on to a new challenge and leaving the FRC, I have every confidence in the effective, impactful regulator I leave behind. With the leadership of Sarah Rapson as Deputy Chief Executive in the interim, and the dedication of the nearly 450-strong workforce the organisation has in place, I know that the creation and evolution of ARGA will be inevitable once legislation is in place. I am proud of the work I have done as part of the FRC, and look forward to seeing its every success in the future.

Signature of Jacqueline Thompson

Sir Jonathan Thompson Chief Executive Officer and Accounting Officer

"I have every confidence in the effective, impactful regulator I leave behind."

A note from Sarah Rapson, Deputy Chief Executive

When taking on the role of Deputy Chief Executive in February 2023, as well as my existing duties as Executive Director of Supervision, I did so knowing that we were well on our way to ARGA via the transformation journey that Jon has overseen in his more than three years at the FRC. While DBT undertakes the search for a new, permanent Chief Executive, I am proud to take on this important role. I will lead the FRC in its work as an assertive, proportionate regulator, seeking to raise the quality of audit and corporate governance and reporting in corporate Britain. Assertive yet proportionate regulation is vital for the UK to maintain and develop its position as a world-leading international finance centre.

I want to thank Jon for the work he has done and overseen during his tenure here and look forward to the future of the FRC and ARGA. This year, we will continue to push for the much needed legislation to be implemented, allowing us to fulfil our duties as the new regulator and continue our work on the four faces of regulation. While we have had to reprioritise some work while we await the legislation from Government, we will enhance our existing regulatory functions to deliver the best possible outcomes, deliver on the reform programme wherever possible under our existing powers, and maintain the high standards that stakeholders around the world have come to expect in the UK market. Smarter, better regulation supports growth.

Under the strategic and experienced leadership of Sir Jan du Plessis as Chair, and with our new CEO expected in place in the course of the next year, I am confident that we will continue to deliver in the best interests of stakeholders this year and beyond.

Signature of an unknown person

Sarah Rapson Executive Director of Supervision and Deputy Chief Executive

Highlights from 2022/23

254 confirmed successful signatories to the Stewardship Code as of February 2023
263 reviews opened by CRR
139 live FRC projects in 2022/23
150 Audit Quality Review inspections completed
443 members of staff, up 52 since 2021/22
81% of staff proud to work for the FRC
38 open investigations
100% of complaints received and dealt with by the Central Complaints function met the service level agreement
80 podcasts and webinars produced

Regulatory Standards

The Regulatory Standards division develops Codes, standards and guidance to support the delivery of high-quality work and innovation. This is done through direct policy work in the UK, and influencing the development of international standards. This is supported by thought leadership, bringing insight into the teams and making optimal use of the feedback loop that comes from monitoring and regulatory activities undertaken by the Supervision and Enforcement divisions. Our work is also informed by the work undertaken by the FRC's Stakeholder Engagement and Corporate Affairs team in their ongoing work with our broad spectrum of stakeholders in the UK and globally, in addition to divisional-specific work on consultations, roundtables and educational workshops.

Case study: supporting better pensions information through our actuarial policy work

The Government Response set out a foundation on which we have worked to promote high-quality and reliable actuarial information in the UK.

In early 2022, we consulted on proposed changes to Actuarial Standard Technical Memorandum (AS TM) 1. After carefully considering the feedback received, we published a revised standard in October 2022, which supports reliable projections for pensions and increases consistency between pension providers. These necessary changes reflect the new environment that will exist once pensions dashboards display Estimated Retirement Income illustrations, and continues to support the Government's work on the pensions dashboard initiative.

Information about the new AS TM1, effective October 2023, can be found on the FRC website.

A number of areas of our work stemming from the Government's response to the White Paper, issued in May 2022, have seen significant progress over the last year. Our review of the Corporate Governance Code, launching via consultation in May, will establish a UK regime for reporting on the effectiveness of internal controls, and also look at interactions with the new resilience statement, audit and assurance policy, wider ESG reporting obligations on Boards and the Audit Committee standards on which we have consulted.

The division is at the heart of our development of regulatory policy which, when done properly, means better outcomes for stakeholders – that includes workers, suppliers, investors, pensioners and society as a whole. We want to emphasise our role as an improvement regulator, and concepts such as the Audit and Assurance Sandbox give a collaborative and innovative approach to developing solutions for the audit sector. Our Competition policy paper also set out our approach to meeting the responsibilities we expect to be assigned through legislation. Stakeholders are able to use our examples of best practice work around stewardship, corporate governance, and via the FRC Lab, and we continue to push to the forefront of emerging topics around data and technology, as well as our ongoing work on ESG.

"A number of areas of our work have seen significant progress over the last year"

Case study: FRC Technology and Digital Steering Group

Technology and its use in the areas for which we have regulatory responsibility is increasingly at the forefront of discussions between regulators, standard setters and practitioners. As a result, we created the FRC Technology and Digital Steering Group with members from across the organisation, which:

Builds upon our position as a leading, improvement regulator that understands and can effectively respond to the impact of technology on our regulatory activities.
Identifies opportunities where technology is likely to lead to significant quality improvements in the areas for which we have regulatory responsibility.
Ensures that technology-related activities undertaken across the FRC link to and support our overall strategy.
Identifies areas of concern early, responds appropriately and equips us for future reviews and potential enforcement action.
Ensures that any guidance we produce is stakeholder focused and addresses real issues emerging in practice.

Aligned with this, we are also making better use of the FRC Lab to address bigger thematic matters. Over the last year, the Lab has undertaken policy-driven research looking at materiality in practice, net zero disclosures, digital security risk disclosure, structured digital reporting and ESG data production, distribution, and consumption by preparers. A better understanding of materiality is critical to ensure that companies can report better information to support decision-making and not just more information that does not meet stakeholder needs.

The FRC's ESG and Climate Group continues to play a key role in ensuring that all climate-related activities we undertake link directly to our overall strategy. We continue to ensure messaging for all stakeholders is clear and consistent, building our position as a leader in the important debate about how our stakeholders should respond to the various disclosure and reporting requirements on sustainability and ESG. We have also continued to engage closely with the ISSB as it develops global reporting and disclosure standards, and the FRC is a member of the Board's Sustainability Standards Advisory Forum.

"We want to emphasise our role as an improvement regulator"

In January 2023, we published an updated ESG Statement of Intent that was very well-received by our stakeholders. FRC staff are also playing leading roles in the development of global standards for the assurance of ESG information and the ethics and independence standards that are necessary to underpin high-quality and consistent work that underpins public trust.

Case study: ESG Statement of Intent 2023

The 2023 ESG Statement of Intent serves as a development and update of our original 2021 publication. The 2021 ESG Statement of Intent looked at issues with the production, audit and assurance, distribution, consumption, supervision and regulation of ESG information. Our 2023 update provided a timely review of areas where there remain ongoing challenges in reporting, suggesting actions for preparers to produce decision-relevant information, and set out our plans to engage with the market to ensure that stakeholder needs are met.

Since the publication of the original statement, we have produced a range of helpful tools, information and guidance that reflects the fast-evolving landscape of ESG, as well as the breadth of our remit. We continue our work to improve transparency on climate and wider ESG risks, and this year we are considering a number of areas in our projects and thematics, including materiality disclosures, support for Financial Reporting Standard (FRS) 102 preparers, ESG reporting requirements of the Corporate Governance Code, and the link between investors and ESG reporting.

Our ongoing international work looks at how we can influence the development of international auditing and assurance standards through our direct involvement in the International Audit and Assurance Standards Board (IAASB), responding to international consultations, and through our engagement with other international standard setters and regulatory bodies such as the International Ethics Standards Board for Accountants (IESBA).

We remain a part of the International Forum of Independent Audit Regulators (IFIAR) and contribute to all of its working groups, Josephine Jackson (Director of International Audit Policy) sits as an IAASB Board member providing leadership and direct input into standard development, and Mark Babington (Executive Director of Regulatory Standards) took on the role of IESBA Board member in January 2022.

"The FRC plays a leading role in the development of global standards"

Supervision

The Supervision division delivers the FRC's supervision and monitoring obligations in respect of audit, accounting, corporate reporting and actuarial work. As the supervision function of an improvement regulator, it promotes innovation and improvement by exploring good practice to raise the quality of audit and corporate reporting for all of our stakeholders.

Our four faces regulatory model emphasises our 'Supervisor' role in monitoring not only requirements but challenge, culture, and behaviours as well. We have continued our assertive approach to audit firm supervision, and although much of our work focuses on audit, this does not happen in a vacuum. While audit supports the production of high-quality, decision-useful information for stakeholders, we ensure that all aspects of the sector maintain the high standards the FRC expects.

This year, we have continued our highly regarded and well-received 'What Makes a Good...' series, with the publication of 'What Makes a Good Environment for Auditor Scepticism and Challenge' in November 2022, and 'What Makes a Good Annual Report and Accounts' in December 2022.

"We have continued our assertive approach to audit firm supervision"

Case study: What Makes a Good... Annual Report and Accounts

As an improvement regulator, we use a principles-based framework that identifies corporate reporting principles and effective communications characteristics. We recognise the Annual Report and Accounts as the cornerstone of corporate reporting, which should provide investors with clear and relevant information on a company's performance and prospects to help them make informed investment decisions and to promote effective stewardship.

'What Makes a Good... Annual Report and Accounts' provides good practice examples we identified as part of our ongoing supervision work and sets out our view of the characteristics associated with a high-quality Annual Report and Accounts.

Our underpinning assumption is that a good Annual Report and Accounts must comply with the relevant legal, regulatory, financial reporting and code requirements. However, as every business is different, preparing a high-quality Annual Report and Accounts must be more than a compliance exercise and will vary between entities.

This publication sets out opportunities for improvement and illustrates better practice, looking at ways that different aspects of the Annual Report and Accounts can represent:

Good quality application that we encourage other companies to consider when preparing their Annual Report and Accounts
Issues we have identified in our role as an improvement regulator
Ways in which a company may improve the quality of its reporting

Through our Annual Corporate Reporting Review for 2022, we saw that despite a continued challenging external environment, the high quality of corporate reporting has been maintained, particularly in respect of the FTSE 350.

The annual Tier 1 firm supervision and inspection reports, published in 2022, showed that audit quality continues to improve at the largest audit firms and on the largest audits, but still more improvement is required to deliver consistent audit quality. It is clear that a combination of the FRC's increasingly assertive supervision approach, alongside investment from the firms in their systems, people and capabilities to improve audit quality, is starting to have a positive impact.

And while the first Tier 2 and 3 firms supervision and inspection report found significant shortcomings in audit quality, the resulting Audit Firm Scalebox, announced in December 2022, looks at bespoke measures to help smaller firms meet the high quality standards expected of Public Interest Entity (PIE) audit firms and to develop robust quality control systems as they grow both their capability and capacity.

Our role as system partner was demonstrated in the publication of 11 firm-level audit quality indicators to provide users of audit services with greater insight into many of the indicators that drive audit quality. Firms will provide these indicators to the FRC, and the publication of comparable data will provide users of audit services with an additional source of information, enabling detailed and robust conversations about audit quality with firms during individual engagements and when considering auditor appointments.

2022 also saw the completion of our first transformation project in Supervision, with the launch of the PIE Auditor Register in December. This further bolsters our supervisory toolkit and helps us to hold firms to account. This year also saw the appointment of Neil Harris as our first Director of Local Audit, and in March 2023 our MoU with DLUHC was published, enabling us to clearly set out our role as shadow system leader in this space until the creation of ARGA allows us to take on the role fully.

As set out in our 2023-26 3-Year Plan, we continue to focus on activities to deliver further aspirations of the reform programme, while maintaining or enhancing our existing regulatory functions to ensure that they are delivering the best possible outcomes. We have therefore begun to develop our supervisory oversight strategy for the professional bodies. The supervision model for the professional bodies will seek to mirror the model that has worked so well with the largest audit firms.

We will have a supervisor who will pull together a more holistic view of regulatory activities at the professional bodies. This view will consider all elements of the membership journey from student to full member, including continuous professional development, authorisation of the individuals and firms, and the overall governance and leadership of the organisation. Additionally, following the UK's exit from the EU and UK auditors' loss of automatic statutory audit rights in EU member states, we are seeking to secure several mutual recognition agreements concerning audit qualifications with key countries around the world. We are currently in negotiations with Australia and New Zealand, with a view to reaching agreement later this year.

"The PIE Auditor Register bolsters our supervisory toolkit"

Enforcement

The Enforcement division protects the public interest, maintains confidence in the regulatory regime, and deters breaches of relevant requirements by holding to account auditors, accountants, accountancy firms and actuaries to support high standards in audit, accounting, corporate reporting and actuarial work. The division:

Conducts investigations and takes appropriate, risk-focused enforcement action where it is in the public interest.
Promotes improvements by communicating clear messages through enforcement outcomes and publications such as the Annual Enforcement Review.
Sets and monitors effective non-financial sanctions designed to improve quality.

A strong feedback loop within the FRC ensures that the Regulatory Standards, Supervision and Enforcement divisions work hand in hand to ensure better outcomes for all stakeholders. This in turn feeds into our four faces approach to regulation, with Enforcement naturally taking on the 'Enforcer' role while still making valuable contributions to other faces.

This year, we have seen a reduction in the size of the case portfolio as fewer new cases have been opened, and our hard work to conclude legacy cases has continued. We remain mindful of the current challenging environment for all in the financial reporting space, which we recognise may give rise to an increase in instances where we consider opening an investigation. That's why it is as important as ever that the FRC sets out its expectations and guidance to help preparers and accounting, audit and actuarial professionals manage the challenges as much as possible. But, while we may see more cases, you won't see a change in our approach – we will continue to uphold standards and take appropriate action when necessary, holding those who do not meet these standards to account.

Our enforcement work, published outcomes and non-financial sanctions play a vital part in our role as an improvement regulator, and we believe that they are effective in encouraging better behaviours, judgements and quality. Compared to the many thousands of audits conducted annually, and the hundreds of AQR inspections completed, we have only seen it necessary to take action in relatively few instances.

"We will continue to uphold standards and take appropriate action when necessary"

This year, we have:

Resolved 16 cases through constructive engagement.
Met our established Key Performance Indicator (KPI)¹ in 75% of investigations.
Published 19 outcomes, 1 Tribunal Report and our fourth Annual Enforcement Review.
Grown the team in strength and depth of capacity and capability from 64 to 69.
Opened 10 investigations.
Resolved 11 cases through settlement.
Closed 2 audit cases with no action.
Closed 4 cases against members in business.
Reduced the case portfolio from a high of 52 in Autumn 2021 to 38 at 31 March 2023.

Common questions

Who falls under the FRC's remit for enforcement? Is it just the biggest audit firms that you enforce against?

No. The FRC conducts investigations and can bring enforcement action in the public interest against auditors and audit firms, accountants, accountancy firms and actuaries. However, we currently have no powers to investigate, take enforcement action or impose sanctions on individuals including Directors, other than those who were at the relevant time members of the professional accountancy bodies or members of the IFoA. Further details of our powers, which are subject to legislative change, appear on our website.

Are sanctions imposed simply to punish do they actually improve behaviours or standards?

The purpose of sanctions is to protect the public interest, uphold standards and confidence in the regulatory regime, and deter breaches. Sanctions are not imposed to punish. The significant growth in non-financial sanctions in recent years is directly targeted at improving quality, standards and behaviours.

Shouldn't these sanctions be reserved for only the most serious cases, involving dishonesty or ethical failings?

Our sanctions policy sets out that decision-makers should have regard to the principles of proportionality when applying sanctions. However, it is crucial to note that failures in financial reporting and audit more typically arise through lack of skill and competence than dishonesty. All failures, however caused, can directly damage the interests of a broad range of members of society including employees, creditors and pensioners, as well as damage the trust that investors and organisations have in the UK as a good place to do business, hence the importance of holding relevant parties to account and through published outcomes of the breaches found, demonstrating behaviours to be avoided.

Why apply enforcement action against individuals? Shouldn't the FRC focus on the firms?

Improvements to firms' behaviours and cultures are always a key objective of the FRC; however, it must be recognised that firms act through individuals. It is these individuals who are personally accountable for compliance with ethical, accounting and auditing standards, material breaches of which are so damaging to the confidence in the reliance that can be placed on financial reporting.

Once an investigation has started, is it a foregone conclusion that breaches of duty will be sanctioned?

No. Sanctions are based on an objective, evidence-based assessment of whether breaches that are serious or significant individually or collectively have occurred. The FRC has seen an average of 11 cases where sanctions were imposed in each of the four years to 31 March 2023, as compared with an average of four cases over the same period where they were not. As identified in the 2022 AER, of our 17 concluded cases in 2021/22, three were closed with no further action, 13 were settled by agreement with findings of misconduct/breaches of duty, and one case resulted in proceedings before the Independent Tribunal.

Why do enforcement cases take such a significant period of time to be resolved?

Cases vary in the number of years in scope and in the number and complexity of issues under consideration. Investigations need to be fair and thorough, and are subject to factors outside our control, including the responsiveness of firms, and availability of materials and third parties. Efforts to improve timeliness are ongoing and this year resulted in 75% of cases meeting their KPI.

Couldn't constructive engagement help resolve issues faster if applied to all cases?

Constructive engagement is a helpful means of resolving cases where the audit quality concerns can be appropriately and satisfactorily addressed without full investigation, enforcement action, sanction or published outcome. In 2021/22, we saw 39% of our cases resolved through constructive engagement with ten separate audit firms, typically where the errors appeared unlikely to have had a real impact on the decisions taken by users of the financial statements. This may have been because the errors were only marginally material in a quantitative sense, were in highly technical areas of the financial statements, or were in areas that were not of fundamental importance to the measurement of the underlying financial performance of the entity. However, constructive engagement is not suitable for all cases. The current lack of published outcomes in such cases inhibits our ability to act as an improvement regulator for the wider marketplace and complex cases involving serious breaches that impact the public interest require imposition of sanctions.

Does the FRC have access to the technical specialists whose expertise would support the timely completion of cases?

Specialist audit advice is available within the Enforcement division, and teams are also able to draw on technical expertise from across the FRC, including from members of the FRC's extensive Advisory Panel and Senior Advisers. An independent expert is instructed in all cases, save a handful where evidence from an external expert is not required. The majority of our cases are resolved through settlement or successful hearings before an Independent Tribunal, evidencing our well-developed understanding of the cases we investigate.

The Corporate Services division supports the work of the FRC by providing professional HR, finance, risk, legal, IT, economic advice and research, and data and analytics services to ensure that the organisation is well run and complies with all relevant laws and duties. It has been pleasing to see year-on-year improvements across all performance indicators and the organisation continues to grow, with the support of the division.

This year, the division has continued to embed new systems and procedures across the organisation in our budgeting, learning and development, general counsel, HR, diversity and inclusion, and finance teams. The team supports the day-to-day demands and deliveries of the FRC across all divisions. Our work to deliver better organisational behaviours and build business resilience underpins our four faces model and our work as an improvement regulator, all while building a platform for the future.

This year, we have:

Implemented operational effectiveness and enhanced reporting to facilitate the four faces approach to regulation.
Developed how we use and maintain data and information to support our regulatory work to help make better decisions, and refreshed the approach to information management, security and data privacy.
Enhanced our data and analytical capability and improved intelligence to support supervisory decision-making.
Engaged with Government on impact assessments for regulatory initiatives, working with colleagues across the wider organisation.
Continued good quality recruitment, with an increased headcount of 443 as of 31 March 2023, and invested in the learning and development of our people.
Progressed our commitment to diversity and inclusion across characteristics, and further improved gender pay gap reporting.
Conducted our annual people survey which saw improvements across key performance indicators (see page 49) and recognises the role of our now embedded Values and Behaviours.
Implemented our long-term hybrid working procedures as we maintain a hybrid approach to business as usual.
Improved our operational and IT resilience and embedding of our risk and control framework, and contingency planning including testing our responses to unplanned events.
Updated the complaints handling processes against external benchmarking.
Collaborated closely with the Transformation Programme via the legal team.
Set out our approach to the statutory funding of ARGA.
Commenced the planning for new offices for the FRC and ARGA.

Strategy and Change

The Strategy and Change team is the engine for transformation across the organisation, through delivery of project and programme management that embeds sustainable change. The team is also responsible for the development of the FRC's strategy and 3-year plan in collaboration with the Board, Executive and Finance teams. The Strategy and Change function sits in the newly established CEO division, is cross-functional, and focuses on managing change and continuous improvement across the entire organisation.

Work this year focused particularly on adapting to align with our four faces of regulation as we further develop the balance between assertiveness and being an improvement regulator. The team has continued to integrate a more mature Transformation Programme into the ongoing work of the organisation, including re-prioritisation of some areas due to the further delay in introducing legislation to create ARGA.

The 2023-26 3-Year Plan, published on 27 March 2023, sets out the next steps for the organisation, ensuring that we continue to design and deliver effective regulation to the benefit of all stakeholders. The Strategy and Change team spearheads the work of facilitation, joining up work across many of our strategic initiatives. The work of the Transformation Programme team has focused on maximising the impact of non-legislative approaches, such as developing our view on defining the use of public interest test criteria and planned future reporting on our regulatory perimeter, as published in November

Most projects within the programme have objectives and desired outcomes that span both transformation and 'business as usual', and these projects use cross-FRC steering groups to make effective use of colleagues' time. Throughout the year, we have also continued to work closely with our counterparts at DBT on legislative proposals.

Our Project Management Office (PMO) has been working hard to provide all teams with standardised tools, templates and training, aligning our projects to our strategic objectives to support organisational decisions and priorities. During this year, the PMO has further embedded the use of our Projects and Programmes Assurance Board as a forum for the challenge and oversight of our most important projects. It has also expanded the FRC's Project Community as a place for project professionals to share knowledge and expertise together, as part of our overall project management learning and development strategy.

What we said we'd do

What we said we'd do in our 3-Year Plan 2022-25

Regulatory Standards

Action	Completed?
Development and maintenance of standards and codes, including the periodic review of FRS 102, adoption of International Standard on Auditing (ISA) (UK) 500 and ISA (UK) 600, 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.	✓
Preparation for ARGA's local audit systems leader role.	✓
Activities focused on improvements and innovation to support high quality reporting and audit quality including establishment of a new 'Audit Sandbox'.	✓
Promoting the use of technology throughout our policy areas.	✓
Supporting FRC's objectives and activities through increased stakeholder engagement with impact and influence, including an overhaul of planned publications focused on collective impact.	✓

Supervision

Action	Completed?
Deliver a full programme of high-quality AQR inspections, Corporate Reporting Reviews (CRR) and professional oversight visits, and publish associated reporting, including thematic reviews.	✓
Carry out International Standard on Quality Control (ISQC) inspection work and prepare for International Standards of Quality Management (ISQM) 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.	✓
Negotiate mutual recognition agreements resulting from EU Exit.	✓
Perform equivalence and adequacy assessments.	✓

Enforcement

Action	Completed?
Fair, robust and timely case closures or conclusion through focus of investigations, prioritisation, training and recruitment.	✓
Upskilling and training to respond to changes in the Audit Enforcement Procedure (AEP) from January 2022 and implement future powers arising from regulatory reform.	✓
Publication of the AER, driving improved behaviours through messaging case outcomes.	✓

Corporate Services

Action	Completed?
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 the UK Endorsement Board (UKEB).	✓

7. Strategic priorities for 2023/24

An aerial view of several high-rise buildings at dusk, with lights reflecting on a calm canal winding through the city. Canal boats are visible on the water.

Our priorities in 2023/24 will focus on how each division intends to organise its work and the associated deliverables in the coming year, particularly given the re-prioritisation exercise carried out by the organisation as a result of the delay to legislation to create ARGA.

Regulatory Standards

Priorities in 2023/24 include:

Development and maintenance of standards and codes, including completion of the periodic review of FRS 102, adoption of a revised ISA (UK) 500 Audit Evidence, post-implementation reviews of UK auditing standards, in particular ISA (UK) 540 Accounting Estimates and Related Disclosures, review of the UK Corporate Governance Code, and post-implementation review and revision of TAS.
International influencing of auditing, assurance and ethical standards, and significant contribution to non-financial reporting developments in the UK and internationally (especially sustainability reporting).
Policy support for ARGA's local audit system leader role.
Activities focused on improvements and innovation to support high-quality reporting and audit including FRC Lab publications and use of the new Audit Sandbox.
Promoting the use of technology throughout our policy areas through digital reporting and the implications for data and data governance, and commencing the Company and Organisational Data Explorer (CODEx) project.
Supporting the FRC's objectives and activities through increased stakeholder engagement with impact and influence, including website improvements, connected and systematic development of publications, webinars and podcasts, focused on collective impact.

Supervision

Priorities in 2023/24 include:

Delivering a full programme of high-quality AQR inspections, CRR reviews and the FRC's statutory professional oversight functions, and publish associated reporting including thematic reviews.
Increasing activities focused on improvements and innovation to support improved audit quality and resilience in the market, including implementation of the FRC Scalebox.
Approval and registration of audit firms and responsible individuals who undertake PIE audit work.
Assessing the effectiveness of firms' implementation of new auditing and quality management standards.
Developing a supervisory approach for audit committees.
Developing the supervisory oversight strategy for the professional bodies.
Developing the local audit system leader role and team in shadow form, ahead of ARGA implementation.
Reporting on implementation of operational separation.
Developing the market monitoring function.
Delivering projects on developing AQR and improving the quality of auditor education and training.

Enforcement

Priorities in 2023/24 include:

Fair, robust and timely case closures, or conclusion through focus of investigations, prioritisation, training and recruitment.
Upskilling and training to respond to changes in the AEP from January 2022 and to intended changes to procedural published guidance.
Collaboration with DBT on planned legislative change to reach the best achievable outcomes as they pertain to enforcement and the FRC's stated purpose and objectives.
Upskilling to enable full implementation of future powers arising from proposed regulatory reform in 2024 onwards.
Publication of the AER, delivering transparency and driving improved behaviours through messaging case outcomes.

Corporate Services

Priorities in 2023/24 include:

Developing a statutory funding model for ARGA.
Developing and implementing an integrated information management strategy, including a medium-term IT strategy and enhanced cybersecurity risk management.
Data analytics and reporting, economic advice and impact assessment – supporting enhanced market monitoring, the implementation of the FRC Position Paper, and transition to ARGA.
Appropriate workforce planning, aligned with our business planning cycle and designed to incentivise, reward and retain key skills and accommodate any relocation plans.
Strengthening our support infrastructure, including in finance and procurement systems, internal controls and IT.
Enhancing the level of assurance activity against internal policies and controls.
Legal support for all FRC activities, and legal and operational support for the UKEB.
Embedding our contingency planning processes and testing regime.

8. Key Performance Indicators

In measuring our performance, a series of targets are agreed and monitored during the year. The FRC's Executive Committee regularly receives detailed management information on performance against each of the published KPIs. Our 2022/23 performance against some of the key measures is shown below together with prior year performance.

Category	Measure	Target (FY)	2022/23 (FY)	2021/22 (FY)
Supervision and monitoring	Number of reports completed by AQR	154	143	152
	Reviews opened by CRR	240-260	260	252
	Complaints against professional bodies for auditors, accountants and actuaries investigated and responded to within six weeks	75%	81%	79%
	Constructive engagement cases concluded within 12 months	100%	100%	100%
Enforcement	Enforcement cases concluded, settled, or closed within two-year target²	75%	75%	40%

Our 'What Makes a Good...' publication series helps us to define what we believe to be the primary characteristics of a well-functioning audit market with greater choice and resilience, as well as other topics relevant to the production of high quality, decision useful corporate reports. This work allows us to publish more informative, outcomes-based measures showing how our work has impacted on quality in each of the areas we regulate. Identifying appropriate measures, which may often be qualitative in nature, or proxies in the absence of clearly correlated quantitative measures forms part of the deliverables described above.

Category	Measure	Target (FY)	2022/23 (FY)	2021/22 (FY)
Financial and operational performance	Operating costs against budget (excluding the UKEB)	£50.3m	£50.5m	£39.8m
	Recruitment (staff) against budget (excluding the UKEB)	457	443	374
	FRC complaints responded to within service level agreement timeframe	100%	100%	100%
	Research projects undertaken	14	13	12

Over the last year, we have produced a vast amount of helpful material and taken appropriate actions to support our continued commitment to issues relating to ESG. Some highlights include:

Our updated ESG Statement of Intent: What's Next, which set out areas where there remain ongoing challenges in ESG reporting, suggested actions for preparers, and our ongoing plans to engage with the market.
Our annual reviews of Corporate Governance and Stewardship Reporting, including an enhanced focus on ESG governance and reporting.
Our ongoing development of codes, standards and guidance relating to ESG to build a system that is forward-looking and fit for purpose.

The page displays three distinct content blocks: Environmental, Social, and Corporate Governance, each with associated text and metrics.

Environmental * Representing the UK on IESBA, the ISSB and IAASB * FRC Lab reports on improving ESG data production and net zero disclosures (see '2023 highlights') * Guidance on the Strategic Report, incorporating climate-related financial risks and opportunities

Social * 81% Our annual staff survey found 81% of staff were proud to work for the FRC (see 'Our people') * Introduction of flexible public holidays, allowing colleagues to switch standard paid public holidays to reflect events and festivities that are important to them * Continued embedding of positive culture via our Values and Behaviours with internal events and updates to colleagues (see culture in 'Our people')

Corporate governance * 7 Recruitment of new members to the Advisory Panel, due to start in May 2023 * 12 Appointment of 12 new members to the independent Tribunal Panel

Aerial view of several offshore wind turbines in a line over blue water.

10. Our people

People are at 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.

Over the last year, we have continued to expand the organisation in anticipation of ARGA. We have grown to 443 employees, which is a 12% net increase on our 2022 year-end headcount (391). 353 members of staff were full-time, 72 of staff were part-time, and 18 were employed through secondment or contract.

Division	Number of new staff recruited in 2022/23
Corporate Services	25
Enforcement	9
Regulatory Standards	23
Supervision	24
UKEB	8
Grand total	89

Looking ahead to 2023/24, 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 new roles agreed in our annual budget. It is anticipated that we will add 90 new roles to the FRC in 2023/24.

Our hybrid working programme is now integrated across the organisation, allowing our people to combine the benefits of working from home with time in the office, which allows for collaboration and working together in person as needed.

A full legal review of all of our people policies was last undertaken in November 2021.

Staff wellbeing

The FRC continues to prioritise the wellbeing of our staff. Our Employee Assistance provision provides access to GP online services, online physiotherapy, counselling and legal advice services, as well as hosting an extensive series of webinars and workshops aimed at improving the health and wellbeing of our employees.

We have continued to embrace a four-day fortnight in the office for all staff, with staff able to choose whether to work from home or the office for the remaining days.

Health and safety

At the FRC, we want to provide a healthy and safe working environment for all our staff and visitors. 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 absence for the 12 months to March 2023 was 4.0 days (2022: 3.2 days).

Talent development

We continue to invest in the development of our employees. Since the last Annual Report, over 55 staff (approximately one-ninth of the workforce) have secured places on structured programmes of leadership and management development. We have embedded a culture of learning and talent development across the organisation and continue to allocate six days per year to learning and development activities, with the potential for more with the agreement of an individual's manager.

Of 443 employees, 281 are members of professional bodies and 57 employees are working towards professional qualifications.

All FRC staff are entitled to two days of paid volunteering or Corporate Social Responsibility leave per year. We offer all employees the opportunity to make regular donations, tax free, straight from their pay to any UK registered charity via the Payroll Giving scheme.

"We prioritise the wellbeing of our staff"

Staff retention

Over the last year, attrition has remained low with a voluntary turnover of 7.9% and involuntary turnover of 2.2%. However, given the ongoing competitive employment market, we keep this under constant review. We have also had 11 members of staff return from maternity or parental leave this year.

Internal movements and promotions continue to provide an opportunity for our people to develop their career, and of the 119 vacancies filled in 2022/23, 56 of them were internal appointments. We also continue to review and adjust the shape of our organisation as we grow, further developing our workforce planning strategy.

The FRC was subject to the public sector pay pause in 2021/22. In 2022/23, we reviewed our annual compensation approach to respond to the market changes we had seen during the pay pause and to ensure that we could resource and retain the people required to enable the FRC to meet its ambitious goals. This included raising entry level pay, focusing on our competency pay approach and recognising the cost of living pressures on colleagues.

Diversity and inclusion

Diversity and inclusion (D&I) continues to be a strength of the FRC. Our three-year strategy of 2021/22 is now embedded across the organisation, with all staff required to have a D&I performance objective.

Our gender pay gap now sits at 0% (median figure. Mean 10.7%. 2022 median: 15.9%), which equates to a 15.9% improvement. This continued reduction in our gender pay gap reflects the increasing number of women at all job levels in the organisation.

Our D&I network groups continue to gain traction, and all have an allocated executive sponsor. We continue to celebrate events and hold educational sessions in relation to the groups throughout the year.

The FRC provides a range of learning and development opportunities on D&I including active bystander training which is mandatory training for all employees. In addition, we offer inclusive language and career development training to all staff and encourage disabled staff to blog about their own lived experiences. During this year, we have partnered with the Business Disability Forum to provide more support to managers, where they are faced with questions from disabled employees. In the new financial year, we will broaden our training offer to include learning on neurodiversity and deaf awareness.

The FRC is a signatory to the Women in Finance Charter. We also partner with LGBT Great, a global member platform that provides a safe space for LGBT+ people and their allies to network and learn.

Disability Confident

In 2020, the FRC created a working group on disability, which recently became the Enable Network. The remit of the Enable Network is to:

Foster an environment of inclusion, candour and openness within the FRC regarding disability and how these intersect with colleagues' other interests and experiences.
Emphasise how better awareness of disability issues helps the FRC fulfil its values of being influential, effective, fair and independent.

Inclusive recruitment

The FRC is a signatory to the Government's Disability Confident scheme and is committed to offering job applicants with a disability a guaranteed interview if they meet the minimum requirements in the job advert. In addition to this, reasonable adjustments requested by applicants are considered as a matter of routine and in the new financial year, we will introduce a new policy and process on anonymised recruitment to mitigate the impact of unconscious bias in the shortlisting process.

A graphic with a checkmark and the text "disability confident COMMITTED".

Age breakdown

A pie chart showing the age breakdown of FRC staff: * 30 Number of staff aged 18–25 * 175 Number of staff aged 26–40 * 171 Number of staff aged 41–55 * 67 Number of staff aged over 55

Gender breakdown

A pie chart showing the gender breakdown of FRC staff. Data is presented in a table format:

	2023	2022 (out of 391)
Number of female staff	250 (56%)	221 (57%)
Number of male staff	193 (44%)	170 (43%)
Other gender identity	0	0
Gender not disclosed	0	1

Ethnicity breakdown

A pie chart showing the ethnicity breakdown of FRC staff. Data is presented in a table format:

	2022/23	2021/22
Number of white staff	267 (60%)	236 (60%)
Number of Asian staff	65 (15%)	52 (13%)
Number of Black staff	24 (5%)	24 (6%)
Mixed-race staff	20 (5%)	16 (4%)
Other ethnicity	14 (3%)	5 (1%)
Preferred not to disclose ethnicity	53 (12%)	59 (15%)

Diversity data for senior managers (Level 6+) out of 25

A pie chart showing diversity data for senior managers (Level 6+). Data is presented in a table format:

	Female	Male
Total	13	12

Breakdown:

	18	Number of white staff
	2	Number of Asian staff
	0	Number of Black staff
	0	Mixed-race staff
	0	Other ethnicity
	5	Not disclosed

Culture

Our Values and Behaviours are now ingrained in the culture of the organisation, following the review of our values in

Our values reflect the Regulators' Code. In our 2023 people survey, strong engagement with our Values and Behaviours was evidenced with strong scores for statements relating to Values and Behaviours:

FRC Behaviours and Values (showing percentage of respondents)

A series of horizontal bar charts showing the percentage of respondents for various statements regarding FRC Behaviours and Values, broken down by 'Strongly agree', 'Agree', 'Neither agree nor disagree', 'Disagree', and 'Strongly disagree'.

Statements and example percentages: * I am aware of, and understand, the FRC Values and Behaviours * FRC Values and Behaviours are clear and well-defined * FRC Values and Behaviours are embedded in the way we work * FRC Values and Behaviours guide the way we operate and make decisions * I agree with FRC Values and Behaviours (example shows 65% for 'Strongly Agree' and 9% for 'Strongly Disagree' across the whole bar length, implicitly showing other categories making up the rest) * Colleagues within the FRC demonstrate and support the FRC Values and Behaviours * My manager treats me with respect and fairness * Colleagues within the FRC treat external stakeholders with respect * I believe the FRC is joined-up in its approach to work across the organisation/divisions * In the FRC people are encouraged to speak up when they identify a serious policy or delivery risk * I feel able to challenge inappropriate behaviour in the workplace

Legend: * Darkest blue: Strongly agree * Medium blue: Agree * Light blue: Neither agree nor disagree * Pale green: Disagree * Dark green: Strongly disagree

Employee engagement

We have a number of active channels to engage with our colleagues, including monthly town halls and divisional team meetings, as well as internal communications activities such as newsletters and podcasts. These activities keep staff informed on the FRC Strategy, Plan and Budget, as well as 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 a knitting circle.

Consultation with colleagues is exercised through our People Forum. Ruwan Weerasekera is our NED with responsibility for workforce engagement and reports to the Board and People Committee on employee views and areas of focus. Representatives from each division from across the FRC meet on a bimonthly basis to discuss key people issues. The agenda is broad but key topics this year have been hybrid working, learning and development provision and D&I.

The 2023 People Survey ran in January, and saw an excellent response rate of 82%, giving rich data on the current views of staff on a wide range of issues and demonstrating a good level of engagement among employees. The survey was facilitated by an external provider, Survey Solutions, appointed after a competitive procurement process.

"Our 2023 People Survey saw an excellent response rate of 82%"

A circular diagram titled "Our Purpose Our Values". The inner circle is "Our Purpose" with the text: "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."

The outer ring is divided into segments representing "Our Values": * Influential * Effective * Fair * Independent

The engagement score using the Civil Service Engagement Index calculation is 71 (2022: 70). Out of 5-scale questions, 4 is considered to be an 'excellent' or 'very good' results, with 1 'lukewarm' result and 0 'poor'. These results help us to identify areas of strength and development for the FRC.

A set of three bar charts comparing percentages for 2023 and 2022.

Percentage of staff who were proud to work for the FRC.
- 2023: 81%
- 2022: 80%
Percentage of staff who were aware of the FRC's Values and Behaviours.
- 2023: 94%
- 2022: 91%
Percentage of staff who felt management was considerate of their life outside work.
- 2023: 94%
- 2022: 89%

11. 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.
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 our stakeholders 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

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 continues to deliver high-quality engagement with our stakeholders and increase the reach, engagement and targeting of our communications and activity.

Our approach to stakeholder engagement

Our approach to stakeholder engagement focuses on:

Creating a network of advocates.
Soliciting senior level input.
Positioning the FRC as a leader in key debates.
Gathering input into policymaking and consultations.
Driving awareness and engagement with our Codes and best practices.
Ensuring that the FRC is a part of relevant decision-making bodies and groups.

We regularly use a variety of formal and informal engagement channels to reach our wide range of stakeholders. This year, we will continue our work on audit and corporate governance reform working towards the future of the FRC and ARGA, as well as a major consultation on the review of the Corporate Governance Code in addition to our business-as-usual work.

Board consideration of stakeholder matters

The Board and Executive Committee 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, with due process on consultations relating to matters of public interest. Feedback statements are issued following consideration of consultation responses, and these are published on the FRC website.

The Board has a process in place for decision-making, taking into account the FRC's strategic objectives, to ensure it has confidence in the decisions it takes. Board paper templates require that papers on topics that may affect stakeholders set out the relevant issues and potential impact. The Board also works to ensure that its decisions are consistent. When making key decisions, the Directors also have regard to the need to foster the company's business relationship with suppliers, customers and all other stakeholders in our supply chain during the financial year.

The success of the FRC is dependent on strong engagement from all of our stakeholders and we recognise their valuable contribution to our work. Some particular highlights from this year include:

Consulting with the actuarial community to support the launch of the Pensions Dashboard.
The FRC strategy and plan, informed by significant stakeholder feedback via meetings between the CEO, Chair and stakeholders to gather views of the FRC and how we can progress on our transformation journey.
An event for the FRC's Non-Executive Advisers, a vital component of the governance structure, to update them on current and ongoing developments.

12. Environmental impact

Alongside mandatory Streamlined Energy and Carbon Reporting (SECR) disclosures, we have made voluntary disclosures aligned with Task Force on Climate-related Financial Disclosures (TCFD) and Sustainability Accounting Standards Board (SASB) recommendations for Professional Commercial Services companies.

You can find our SASB disclosures on the following pages:


Data handling and data security	p60	Ethics and compliance	p60
Employee engagement	p50	Our people	p44
Professional Integrity	p61

Governance

The FRC Board has ultimate responsibility for the FRC's consideration of, and response to, climate change and other environmental issues including the nature and extent of the principal risks to our strategic objectives. The Audit & Risk Committee has a delegated responsibility from the Board for reviewing the full risk register, looking at all current and emerging risks to our strategy and objectives.

The Audit & Risk Committee's Terms of Reference were amended this year to include explicit reference to the committee's oversight of identified climate-related risks, ensuring that climate related risks and opportunities remain at the forefront of its risk discussions. Our Board, committee and Executive Committee report templates were also updated this year to include a dedicated section and questions for report writers on ESG considerations.

As part of our annual Board Effectiveness Review, the Board considered the strength and effectiveness of its leadership on ESG matters, and developments in this area have been built into the Board's action plan. This includes additional training and regular updates from the ESG and Climate Group, and a planned strategy session on the international direction of travel on climate and sustainability standard-setting, current UK government policy objectives, the scope of the FRC's current and future powers and our crossover with other UK regulators, particularly the FCA.

Strategy

Since conducting our initial assessment of climate change risks in 2022 in line with TCFD, our central risk team have undertaken a series of workshops to identify any emerging climate change risks or opportunities for the FRC. Our assessment from these workshops is that the FRC is not materially exposed to the physical risks of climate change in the short and medium term and that climate change does not represent a threat to our viability or ability to operate.

In July 2022, we carried out a physical disruption exercise as part of our overall business continuity planning, based on an extreme summer heat scenario and its potential impact on our staff and operations. The exercise was carried out by the FRC's crisis management team and used to identify areas for improvement in the FRC's Business Continuity Plan, including the development of a specific plan to respond to significant disruptions to power supplies.

Sustainability credentials and resilience to climate change will inform our decisions regarding the establishment of new office buildings for the FRC in the coming years.

Risk

We operate a bottom-up approach to risk, considering risks and opportunities at all levels of our operations from individual project discussions through to divisional and organisational risk identification workshops. This information feeds into the risk register which is overseen by Executive Committee, the Audit & Risk Committee, and ultimately the Board for any risk assessed to be a principal risk. The FRC recognises the growing demands for meaningful, assured and comparable sustainability reporting and significant implications that these demands will have for businesses and investors in the UK. Alongside other regulators, the FRC has been asked to support Government in developing the requirements and standards for high quality sustainability reporting in the UK. For more information on the FRC's ongoing work in this area please see page

A failure to meet stakeholder expectations on ESG reporting and related monitoring and enforcement activities have been identified as a principal risk for the FRC and is therefore overseen by the Board (please see page 83).

More information on the FRC's risk framework and processes can be found on page 75.

Metrics

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.

We receive monthly electricity, gas and water consumption meter readings from the building's central facilities management team. We used this data to calculate and report our Scope 1 and 2 consumption levels this year and have applied this year's SECR conversion factors to calculate our emissions.

We also collect data on IT waste, single use plastics, paper and business travel which we provide to Government as part of the Greening Government Commitments. We have been collecting this data for the last two financial years, which has enabled us to identify and promote positive trends in our consumption and waste.

	2022/23	2021/22
Scope 1 consumption (kWh)
Natural gas	210,813	225,275
Vehicle fleet fuels	0	0
Scope 2 consumption (kWh)
Purchased electricity	156,089	131,225
Total energy consumption (kWh)	366,902	356,500
Scope 1 emissions (tCO₂e in ktn)	42	46
Scope 2 emissions (tCO₂e in ktn)	30	28
Total carbon emissions (tCO₂e in ktn)	72	74
Intensity ratio
(Total carbon emissions kg/number of staff)	163*	189*

*(72ktn/443 members of staff) **(74ktn/391 members of staff)

	2022/23	2021/22
Water consumption (m³)	1,460	1,132
Paper consumption (A4 reams equivalent)	444	276
Single use plastic consumption (no. of items)	2,615	7,923
Business travel (km)	603,845	61,212

Intensity ratio

We have chosen to use an intensity ratio of carbon emissions (in kg) by number of employed staff given the intangibility of our output and the year-on-year changes in our staff numbers. As of 31 March 2023, the FRC had 443 employees (2021/22: 391 employees).

Energy consumption

There has been an increase in electricity and water consumption this year in comparison to the previous two years, which can be attributed to the year-on-year increase in staff working in our office as part of our increase in headcount and the operation of our hybrid working policy. However, we note that energy consumption levels remain below pre-pandemic (2019/20) levels and that the year-on-year downward trend in gas consumption has continued, with gas consumption levels now 9% lower than there were in 2019/20. 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 week. We are working to improve our measurement of Scope 3 emissions, including from commuting and home working, to help us develop a better understanding of our total emissions.

FRC business travel has increased significantly this year as invitations to meet with other regulators and speak at international events have returned post-pandemic. However, all business travel complied with the published travel policy and staff are actively asked to weigh the environmental impact of their travel against the potential benefits to the FRC before making their travel arrangements.

Waste management

The FRC has a policy on the disposal of IT equipment and this year, we have engaged with an external contractor to manage a large-scale assessment of our IT equipment, identifying items to sell, refurbish, recycle or send to landfill in line with the Waste Electrical and Electronic Equipment Regulations 2013.

Due to higher office occupancy, our paper consumption has increased this year against 2021/22 levels but is still well below pre-pandemic levels. Our single-use plastic consumption has fallen significantly but we continue to consider non plastic alternatives, particularly for our office stationery items, and have refreshed our communications to staff about the need to reduce paper and single-use plastics consumption.

In July 2022, we removed individual waste bins from under every desk and introduced full waste separation stations across the office. Food waste, recyclables and non-recyclables are now segregated for collection by the building's central waste contractors.

Energy efficiency measures

In making plans to reduce our consumption, we remain mindful that cloud computing is capable of significantly improving energy efficiency and reducing greenhouse gases compared to traditional local servers. We have therefore funded further moves from on-premises applications to more energy efficient cloud hosting.

Plans to install 50% LED lighting to the office by the end of 2022/23 were cancelled. Taking into account the short length of the FRC's remaining lease term at 125 London Wall and our plans to move to new offices in the near future, we determined that the disposal of the old fixtures and the installation of newly manufactured LED lighting was likely to lead to a negative net environmental impact, particularly if the new lighting was not retained by the next lease holder.

13. 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. Executive Committee and the Board, supported by the Audit & Risk Committee, keep those risks and controls in place to mitigate those risks under review on a regular basis. We keep a separate Record of Processing Activities (ROPA) and an Information Asset Register.

We operate an internal Information Governance Group (IGG) that meets quarterly to review, assess and improve operational oversight and coordination of information governance and controls. The remit of the IGG allows it to support the engagement of staff with and commitment to information handling, and to identify areas of concern at an early stage for escalation to Executive Committee or the Audit & Risk Committee if appropriate.

We understand the importance of privacy and maintaining trust and confidence in our data handling processes. Our General Counsel Team (GCT) maintains our privacy and data retention policies and procedures, working closely with the Data Protection Officer. GCT also oversees responses to all GDPR and Freedom of Information Act (FOIA) requests, and compliance with application legislation, including UK GDPR. All FRC staff and Board members have received mandatory training on relevant aspects of UK GDPR, online security risks and FOIA. Through our processes and procedures, we are able to provide assurance that personal data is handled and processed in line with the seven UK GDPR Principles. Information on our privacy policies can be found on our website.

We ensure we have an up-to-date IT architecture in place to defend the FRC against data security and data loss threats that may occur when staff work in the office or at home. This is a continuous process. As a result of our reviews, numerous enhancements were made to anti-virus and malware configuration settings and patching processes. Threat managing features were enhanced and the ability to take action on discovered threats were also introduced. We also tested how we would respond to any malicious activity by carrying out extensive testing over a three-month period, including how our monitoring systems would notify us of suspicious activity. During 2022/23, 22 information incidents were reported. None of the incidents were reportable breaches.

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, and any gifts and hospitality received, to ensure that our work remains free of 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 the Executive Committee. In accordance with the policy, the People Committee regularly reviews disclosures made by the Board members, Executive Committee, Senior Advisers and Advisory Panel Members. These are published on the FRC website.

Bribery policy

UK legislation on bribery applies to the FRC, its staff and members of the governance structure. The FRC Code of Conduct, which staff and members of the governance structure must follow, sets out that all must not:

Bribe another person, which includes offering, promising or giving a financial or other advantage.
Accept a bribe, which includes requesting, agreeing to receive, or accepting a financial or other advantage.
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.

Litigation

During 2022/23 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.

Gifts and hospitality

In accordance with the policy, the People Committee regular review disclosures made by Board members and Executive Committee. These 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

The statement, which was reviewed and updated in 2022, outlines activities taken to support our commitment and future activities. The FRC does not condone any activity that constitutes modern slavery or human trafficking under the Act. 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

The FRC's supplier relationships seek to deliver successful, sustainable solutions. New and existing 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 (achieved in 2022/23: 21 days).

14. 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 concern regulated activities. A small number of complaints are also received about the FRC. A number of complaints we receive are outside of our remit; these are passed on to the relevant authorities or bodies that may be able to assist wherever possible.

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.

In the course of the year, we updated the website pages with quality standards, our complaint form and the complaint processes, as well as benchmarking the complaints process against external standards to ensure that we continue to handle complaints promptly and consistently.

Following receipt, complaints are triaged to determine whether they fall within our remit and, if they are, they are then referred for consideration to one of the below teams:

Corporate Reporting Review: 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.
Case Examiner: 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.
Professional Oversight: responsible for providing independent oversight of the professional accountancy and actuarial bodies, considering the way a body has handled a complaint that was made to it.

Our published policies and complaints forms include clear guidance on how complaints will be dealt with, including timelines.

Complaints in 2022/23

We received 541 complaints during 2022/23, summarised below.


Brought forward (within remit)	20
Incoming complaints	541
Outside remit	474
Closed/resolved complaints (within remit)	81
Carried forward (within remit)	6

The types of complaint received are broken down below.

Complaint nature	Number
Conduct or performance of accountant (regulated)	81
Conduct or performance of accountant (unregulated)	123
Conduct or performance of accountant (unknown)	105
Conduct or performance of auditor	37
Financial reporting	43
Actuarial work	1
Actions of professional body	74
Insolvency issue	8
FRC	1
Other/unknown	68

The handling timescales across all cases closed in the reporting period were an average of 1.2 working days to send an acknowledgement and an average of 3.6 working days for the outcome.

Of the 541 complaints received, 67 were referred to the relevant department within the FRC for further review, with 474 complaints being outside our remit. The actions taken in respect of the complaints considered by the FRC during 2022/23 are set out below. Where complainants raise issues outside of the FRC's remit, they are referred to other bodies as appropriate.

Corporate Reporting Review

The CRR team received 17 complaints related to corporate reporting matters during the year, of which nine related to matters in the accounts, Directors' report or strategic report, which we pursued with the relevant company or we are currently analysing.

Complaints recieved 2022/23

Not pursued	Number
Entity or matter not in scope	7
Insufficient merit	1
Financial statement related
Open	4
Improvements secured notes or/and narrative	2
Improvements secured-primary financial statement restated	1
Financial statement related
Improvements secured	2

The complaints came from a diverse range of parties including private individuals, investors, fund managers and other companies, and relate to companies ranging from private and small AIM to FTSE 100. Consistent with our usual practice, and subject to any relevant confidentiality restrictions, information relating to some complaints was shared with, or referred to, other relevant authorities including the FCA, the Prudential Regulation Authority (PRA) and AIM Regulation.

At the beginning of the year, there were 14 open cases relating to complaints about corporate reporting matters received in earlier years. The actions taken during 2022/23 in relation to these complaints are illustrated below.

Cases brought forward 1 April 2022

Financial statement related	Number
No breach	5
Improvements secured	4
Strategic report related
Improvements secured	3
Open	1
Not pursued
Entity or matter not in scope	1

Case Examiner

Case Examination and Enquiries opened six complaint cases this year, of which one was a whistleblowing disclosure.

Eight complaint cases were closed by the team this year:

One case, in relation to audit, was referred to the Conduct Committee which decided to open an investigation.
One case, in relation to audit, where constructive engagement was undertaken with the audit firm.
Six cases were closed with no further action taken as our enquiries found that there was no basis or information to support the complaint.

Professional Oversight

The Professional Oversight team received 44 complaints about the professional accountancy and actuarial bodies that we oversee and brought forward four complaints that were ongoing from the previous year. The team conducted a full review of the professional bodies' relevant process in ten of these cases, with one further matter still under review as of 31 March

We made a recommendation for improvements to one of the bodies in relation to one of these complaints. The remaining 37 matters either fall outside the team's complaints handling full review remit, or the complainant has not first exhausted the professional accountancy body or actuarial body's complaints procedure. Professional Oversight responded to 81% of complaints within six weeks. Further information received by Professional Oversight, including trends, can be found in our report on our oversight responsibilities for 2022/23, due to be published later this year.

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 2022/23, the FRC received 51 disclosures in its capacity as a prescribed person. As a result, we took the following action:

44 related to issues not within the remit of the FRC, so whistleblowers were signposted to the relevant bodies where appropriate.
7 were of direct relevance to the FRC's responsibilities and were addressed by the relevant teams.

Complaints about the FRC

During 2022/23, one new complaint was received about the FRC. No significant issues of wider concern were raised and the case was handled under the FRC Complaints Procedure. The concern raised was regarding dissatisfaction with the FRC's review of the handling of their complaint by the relevant professional body. The complaint was reviewed, investigated and responded to. The complainant exercised their right to have their complaint escalated to the Independent Complaints Reviewer, who rejected the complaint and confirmed that the FRC had acted in line with policy and procedure.

15. Financial review

The operating environment in the UK in 2022/23 was challenging from a political standpoint, where market confidence was severely affected. The cost of energy due to the Russian invasion of Ukraine and the aftermath of the global pandemic has made it difficult to predict costs. The FRC has, however, been able to deliver a resilient financial performance and this was only possible through the hard work and dedication of all FRC staff.

At the beginning of the financial year, the FRC Group, comprising the FRC and the UKEB, had set a budget to fund its regulatory activities, continue the transition to ARGA and implement new responsibilities following the UK's exit from the EU. The operating budget was £59.8m, of which £55.3m was for FRC regulatory activities (including £5.0m for case costs) and £4.5m for the UKEB.

Expenditure by business activity

Core cost 2022/23 actual (£m)


11.5	Regulatory Standards
28.4	Supervision
2.8	Actuarial Standards and Regulation
5.1	Enforcement core
-0.4	Accounting case costs
3.7	UKEB
51.1	Total

Core cost 2021/22 actual (£m)


11.7	Regulatory Standards
21.1	Supervision
2.3	Actuarial Standards and Regulation
5.1	Enforcement core
2.4	Accounting case costs
2.9	UKEB
45.5	Total

Please note, case costs may vary significantly year-on-year depending on the size and number of cases concluded.

Managing our expenditure

FRC Group expenditure for the year shows an increase on the prior year of £5.6m, mainly driven by headcount changes. Travel costs have increased but with the growing awareness of the high environmental cost of travelling by air, we will keep this under consideration.

FRC investigation case costs of £6.7m (2021/22: £10.1m) were offset by case cost awards of £7.2m. In all cases, cost awards are paid to the Recognised Supervisory Bodies (RSBs) who funded the investigation (the relevant RSB). AEP fine awards were paid to DBT and scheme fine awards were paid to the sponsoring RSB.

Investing in future growth

In 2022/23, we have continued to make investments in the business to support our strategic objectives. Total spend in training has increased to £0.5m (2021/22: £0.3m). We spent a significant proportion of the learning and development budget this year on premium leadership and management development programmes, courses linked to personal and continous professional development, and health and wellbeing events, as well as events to promote greater diversity, equity and inclusion at the FRC. As mentioned, we have reprioritised our recruitment programme and increased our headcount to 443 at the end of the financial year.

Managing our funding

The FRC Group receives funding from the audit profession through statutory arrangements and from the accountancy and actuarial professions, accounts preparers, insurance companies and pension schemes through non-statutory arrangements agreed with Government. There is also a small contribution from Government to fund specific projects.

During 2022/23, the FRC has been successful in raising its funding requirement despite operating in a difficult economic climate. The audit profession contribution received was based on actual costs incurred. Total revenue from levies were above budgeted amounts by £0.5m due to several new companies that went public and listed on the London Stock Exchange.

The FRC consulted on ARGA's statutory funding in 2022 and found broad support to have funding arrangements that support regulatory independence where stakeholders are proportionately charged. We are planning to issue a further consultation on an ARGA funding rulebook before finalising the details in legislation. Unfortunately, we may face some uncertainties where the timing will be affected. Delay in legislation could negatively impact our ability to collect the required funding needed to achieve our objectives, and thereby increase funding risk.

Funding

Funding by group

2022/2023 total £50.9m

Chart showing 2022/2023 total funding of £50.9m by group:

53% (£26.9m) from Accountancy bodies
40% (£20.5m) from Preparers
6% (£2.8m) from Actuarial funding groups
2% (£1.1m) from Other
-1% (-£0.4m) from Enforcement (negative value indicates a net cost/expense)

2021/2022 total £46.8m

Chart showing 2021/2022 total funding of £46.8m by group:

48% (£22.8m) from Accountancy bodies
39% (£18.3m) from Preparers
6% (£2.8m) from Actuarial funding groups
2% (£0.5m) from Other
5% (£2.4m) from Enforcement

Other income includes income from publications and electronic rights, and registration fees from third-country auditors.

Reserves

The FRC currently holds £16.0m 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 DBT, we work with DBT to ensure that any use of 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, 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.

FRC funding sources

The following diagram shows how funding from various stakeholders funds the activities of the FRC.

Diagram: Funding Sources and Sponsored Departments

This diagram illustrates the flow of funding to the FRC and how the FRC sponsors various departments.

Funding Sources (left side, feeding into FRC): * Preparers levy → CCAB * Pension/Insurance levy/IFoA → NAO * Audit firms → TCA registration fee * DLUHC → HMRC * Publications → Companies House * Accountancy firms/RSBs → Government

FRC is central to the diagram.

Sponsored Departments (right side, linked from FRC): * AQR (Audit Quality Review) → CG&S (Corporate Governance and Stewardship) * AMS (Audit Market Supervision) → A&R (Accounting and Reporting) * AFS (Audit Firm Supervision) → FRCLab (Financial Reporting Lab) * LASL (Local Audit System Leader) → XBRL (FRC Taxonomies - XBRL) * A&A (Audit and Assurance) → AS&O (Actuarial Standards and Oversight) * CRR (Corporate Reporting Review) → PO Core (Professional Oversight Core) * Enf Core (Enforcement Core) → TCA and E&A (TCA Registration and Equivalence and Adequacy) * Enf Case (Enforcement Case) → UKEB (UK Endorsement Board)

Departments	Acronym	Departments	Acronym
Audit Quality Review	AQR	Corporate Governance and Stewardship	CG&S
Audit Market Supervision	AMS	Financial Reporting Lab	FRCLab
Audit Firm Supervision	AFS	FRC Taxonomies - XBRL	XBRL
Local Audit System Leader	LASL	Actuarial Standards and Oversight	AS&O
Audit and Assurance	A&A	Professional Oversight Core	PO Core
Corporate Reporting Review	CRR	TCA Registration and Equivalence and Adequacy	TCA and E&A
Enforcement Core	Enf Core	UK Endorsement Board	UKEB
Enforcement Case	Enf Case
Accounting and Reporting	A&R

16. Risk management

Managing the FRC's risks

The FRC's risk management framework ensures timely identification, assessment and management of existing and emerging risks. It focuses on promoting a mature risk culture, effective internal controls, and active cascading of information. The Board and Audit & Risk Committee focus on the key or principal risks. Additionally, the Audit & Risk Committee and Business Committees (Conduct, Supervision, Regulatory Standards and Codes) review the four divisional risk registers, progress with deep dive analysis and horizon scanning, and the risk linkage across the overall organisation.

Last year, we introduced a four faces approach to regulation that supports the delivery of our strategic objectives and ensures that our regulatory priorities and risk management approach are appropriately balanced. Consequently, as part of our 'Supervisor' and 'Enforcer' roles, we have adjusted our risk appetite and increased the intensity of our supervision and monitoring regime to challenge firms to improve audit quality. As a 'System Partner', we are willing to take on high risks, such as introducing the Audit and Assurance Sandbox and the Scalebox to encourage greater innovation.

The Audit & Risk Committee, on behalf of the Board, monitors the risk management and internal control system and has reviewed its effectiveness this year. It also carried out a robust assessment of the FRC's principal and emerging risks, with the outcome of these assessments reported to the Board. The committee agreed that the risk management framework is running effectively, with a culture for active risk discussions that are embedded across all levels, with most audits receiving a substantial or moderate rating that could be enhanced with more balancing of the high standards required as a regulator and ensuring risk management remains proportionate.

We have reviewed our risk appetite statement thresholds to understand what level will best enable our strategy and plan, where to focus our efforts, and where we can tolerate greater risk. Following this review, it was acknowledged that there are practical limitations involved with controlling or mitigating against information risks while continuing to operate efficiently. We have therefore adopted a low appetite for market sensitive or legally privileged risks to limit the potential damage from disclosure, for example, market instability, personal data or fines, and a medium stance, to accept a limited degree of risk, for internal data providing it supports business needs.

"Our four faces approach to regulation ensures that our regulatory priorities and risk management approach are appropriately balanced"

Risk is integrated during every step of our planning and budgeting processes so that all short-term and long-term risks are managed. This also acts as a basis for good corporate governance.

Our risk framework


Board	- Determines our overall risk strategy, management and culture. - Determines the nature and extent of the significant risks to be taken to achieve our strategic objectives (risk appetite).
Audit & Risk Committee	- Supports and advises the Accounting Officer and the Board in oversight of risk management and internal control systems. - Reviews effectiveness of risk management and controls. - Reviews the risk management in the Corporate Services division. - Supports the Board and Audit & Risk Committee in examining risks of particular relevance to the Supervision, Enforcement and Regulatory Standards divisions.
Executive Committee	- Sets the tone from the top. - Establishes a positive risk culture. - Conducts deep dives into principal risks. - Cascades risk and control information.
First line of defence	- Timely identification, assessment and management of existing and emerging risks to achieve strategic objectives.
Second line of defence – the Corporate Risk Management Team	- Timely and accurate reporting and escalating of risk and control information. - Building risk capability. - Providing assurance on risk management activity.
Third line of defence – the internal auditors	- Provides independent assurance on risk management and internal control systems.

Our ongoing work to enhance and improve our risk management framework continues to help identify and manage risks that may prevent us from delivering our strategy or serving the public interest. In terms of the risk management principles set out in HM Treasury's Orange Book, we have:

Governance and leadership

Implemented good divisional adoption of the framework and consideration of risk-based decisions across teams following introduction of a medium-term plan to increase risk maturity across the organisation.
Continued regular risk reviews at the Audit & Risk Committee with some discussions taking place within sub-committees, and periodic deep dives, sponsored by the Executive Directors, to consider current and developing risks and whether they are significant and should be included in our principal risks.
Held discussions at the relevant committees to enable proportionate scrutiny, avoid duplication, and ensure compliance with the UK Corporate Governance Code.

Integration

Conducted risk identification sessions with the Executive Committees and teams, in particular senior leaders, to identify emerging threats and ensure that risks remain relevant and managed at the appropriate level.
Continued engaging with the Risk and Control Champions with quarterly network meetings to further support and embed risk at team level and develop a range of support materials, bitesize videos and one-pagers, and revamped our induction programme.
Integrated horizon scanning across the organisation to enable timely and proportionate decision-making.

Collaboration and best information

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.
Encouraged top-down and bottom-up risk reviews at all levels to contribute to and support more informed risk management and decision-making. This has resulted in two new principal risks, reflected in the following table, and one principal risk being de-escalated.

Risk management processes

Introduced new software to increase accessibility, collaboration and assurance, and support more informed decision-making.
Conducted exercises to test our resilience to cyber threats and responses to market disruption.
Conducted a corporate policy review and made recommendations to help strengthen and assure the effectiveness of our internal control environment.
Raised the visibility of the risk function and principles with all staff.

Continual improvement

Ensured our Internal Audit plan is aligned to the strategic business case, key risks and increased overall level of assurance.
Developed updated training to build upon the skills, knowledge and tools available to staff and budget holders to manage risk in line with the FRC's risk appetite and Managing Public Money.

Principal risks as of 31 March 2023

The detailed principal risks are set out overleaf, mapped against our objectives.

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 objectives

Principal risk	Top three mitigations	Trend	Position against appetite
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.	- We have created a programme plan that provides for policy work with Government (at a pace outside of our control) simultaneous with progressing all non-legislative actions within our control. - We have ensured strong FRC representation on joint programme governance forums with DBT. - We have delivered a broad and balanced stakeholder outreach and engagement programme on the topic of reform.	This risk degraded slightly this year due to the continued lack of legislative certainty. We have again relied on a set of high-level assumptions for planning purposes, while accepting that many factors remain outside of our control. During the year, we took action on non-legislative elements of reform, as set out in our July 2022 Position Paper.	Within appetite
2. Regulatory Standards, Supervision and Enforcement fail to drive the necessary behaviours and outcomes to deliver consistently high standards.	- We are represented on international standard setting boards for auditing, assurance and ethics. We also influence other standard setting boards by actively participating in consultations. This and feedback from our audit inspections, wider supervision and enforcement work provides us with a strong evidence base that our standards are fit for purpose and are updated to respond to new and emerging risks, alongside extensive stakeholder outreach. We carry out horizon scanning, informed by our engagement to identify and address emerging issues. - We work closely with other national standard setters and international standard setting bodies to ensure that stakeholder concerns are addressed. For example, we provided the ISSB with high quality comment letters that influence standards development and informed dialogue with other jurisdictions on areas of common interest. - Regulatory Standards receives feedback from Supervision and Enforcement to draw on lessons learned from their work, to identify potential issues arising from monitoring work and enforcement cases that need to be revised in standards, and to ensure feedback provided to international standard setting bodies reflects the needs of wider FRC regulatory responsibilities; similarly, Supervision and Enforcement draw on expertise from Regulatory Standards as required. Liaison between all three divisions is close and continuous.	Stable. We continue to deliver a programme of work to influence the development of international standards, and make revisions to UK standards to drive behaviours and outcomes. These are informed by diverse feedback gathered from our work and stakeholder engagement.	Within appetite
3. Corporate reporting and audit quality remains inconsistent, resulting in reduced investor/stakeholder confidence and reputational damage to the FRC.	- We are increasing the intensity of our forward-looking supervision of major audit firms including assessment, and where applicable the work of our AQR and CRR teams. We have taken over decision-making on registration of PIE audit firms and auditors and are monitoring the implementation of ISQM1 at the audit firms (including non-PIE firms overseen by the bodies). - 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, and audit firms have an obligation to report breaches of ethical standards to the FRC. - The FRC as the Competent Authority monitors the compliance of delegated agreements between the FRC and RSBs. We can require RSBs and Required Qualifying Bodies (RQBs) to take remedial action and have the power to inspect and gather evidence on RSB and RQB effectiveness.	Improving. Early indications from AQR and Audit Market Supervision (AMS) suggest that audit quality at the major firms continues to improve. We are seeing indications of a trend of improving audit quality and we expect this to continue. 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.	Tolerated
4. Audit market is severely disrupted by failure of, or partial withdrawal from, a segment of the market by a major audit firm.	- The 2021 BEIS White Paper and Government Response 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 and audit firms notify us of any major risks or incidents arising elsewhere in their network. PIE auditor registration could potentially be used to set resilience requirements on 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.	Stable. We are getting more assurance over the risk management processes in Tier 1 firms. Audit firms continue to be financially robust. We issued our Position Paper following the Government Response in July 2022.	Within appetite
5. Failure to maintain data privacy/confidentiality due to un/intentional ex/internal release of data including through cyber attack, resulting in loss of sensitive data (personal/corporate), breach of law/ regulation, fines, censure and reputational damage to the FRC.	- A rolling programme of staff training and awareness around cyber risk and information loss. - A suite of preventative applications and tools to deter unintended information sharing, and reporting tools. - Renewal of the Cyber Essentials Plus certification and contingency planning testing.	Steady progress. Cyber Essentials Plus certification has been renewed and a cyber test exercise has been undertaken. Good levels of training completed by all staff.	Tolerated
6. As a result of limited information sharing within the FRC and lack of a holistic overview, we fail to proactively exploit data/ information which reduces our effectiveness with potential reputational damage.	- Adoption of an information management strategy to improve document classification and the data and document glossary. - Enhanced data and analytical capabilities and reporting. - Governance and consultation around the use and publication of data to support decision-making.	Improving. The adoption of document classification and a data glossary will facilitate access to and sharing of information. The development of an analytical tool is supporting business needs.	Outside appetite
7. Due to lack of clarity on the FRC's role, we fail to meet stakeholder expectations on ESG reporting and related monitoring and enforcement activities.	- We continue to engage with Government and with international standard setters over the development of reporting requirements and standards to support high quality reporting, and also work with other UK regulatory authorities to ensure that our objectives are aligned. - We have developed impactful responses to international consultations, which have been widely referred to by UK and international stakeholders. - We have continued to leverage the work of the FRC ESG and Climate Group to focus our work and set clear market expectations ahead of formal powers to monitor and enforce reporting.	Improving. We have demonstrated our ability to be impactful and deliver work that meets the needs of UK stakeholders and brings clarity to a complex landscape. Formalising the UK legal and regulatory framework is a matter for ministers and will require legislation.	Within appetite
8. Due to a lack of capacity, capability and inability to manage our conflicting roles, the FRC fails to deliver effective shadow system leadership. This leads to a lack of trust and confidence in our ability to drive a coherent system response to local audit challenges.	- The MoU is in place with DLUHC which provides clarity on the FRC's role and responsibilities as shadow system leader ahead of ARGA. We have established a dedicated local audit unit and recruited to key posts. - By June 2023, we will issue a position statement setting out our diagnosis of the issues, the actions we think need to be taken, and how we plan to deliver our role as system leader including short, medium and long-term priorities. - By the summer of 2023, we will become Chair of the Liaison Committee of senior local audit stakeholders and will use our convener role to set clear priorities for action, hold all parties to account on delivering these and make policy recommendations to DLUHC as necessary.	This is a new risk to the FRC. We will monitor and report progress as we commence our shadow system leader role. To date we have made significant progress to be ready for this role including: - Publication of the MoU in March 2023. - Recruitment to key posts (e.g. Director and Deputy Director of Local Audit) and on track for the remaining positions. - Following extensive engagement and research, setting out our emerging views on whole system risk, actions, and short, medium and long-term.	Within appetite

Risk appetite definitions:	Risk appetite definitions:	Time horizon definitions:
Very low – Avoidance of risk and uncertainty is a key objective.	Within appetite – The right people and processes in place are in place to manage the risk.	Short-term: Within one year.
Low – Preference for ultra-safe options that are low risk and only have a potential for limited reward.	Tolerated – The risk is being tolerated and subject to active monitoring.	Medium-term: One year to five years.
Medium – Preference for safe options with little risk and reasonable rewards.	Outside appetite – Risk is of immediate concern and subject to continuous oversight.	Long-term: Over five years.
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.

17. Chair's introduction

I am pleased to present our governance review, which sets out how the Board and its committees operated during 2022/23, my first full year as Chair of the FRC. It has been a busy but rewarding year for the Board, overseeing significant progress in our continued work to raise standards and be an impactful, assertive regulator.

In July 2023, we will have said thank you and farewell to both John Coomber and Sir Jon Thompson. John has made a valuable contribution to the work of the FRC over nearly nine years in a number of roles, most recently as Chair of the Supervision Committee and as Senior Independent Director. I am pleased that Ruwan Weerasekera has agreed to take on the role of Chair of the Supervision Committee, and that Clare Thompson will be taking on the role of Senior Independent Director. The search for our new CEO to take over from Jon is progressing well and, in the meantime, Sarah Rapson has successfully stepped into her new role as Deputy Chief Executive.

We have also recently revised the membership of our People Committee, which predominantly deals with the various aspects of talent management at the FRC. For 2023/24, the committee will be populated by the full suite of Board members, and I will take on the role of the committee's Chair.

Ultimately, the role of the FRC Board is to provide strategic leadership and constructive challenge, particularly in the delivery of its Transformation Programme as we transition to ARGA. We're well on our way towards becoming the new regulator, while also delivering against our strategy and ensuring that the organisation robustly delivers against its mandate. To support this transition, we also conducted the annual Board and Committee Effectiveness Review, which found that the new structure is effective. Further details on actions that will be taken forward in light of the review can be found on page 106.

There is a lot that we should be proud of – it is clear that we've come a long way since Kingman, and the way that individuals in this organisation have contributed to that must be recognised. We're doing everything we can to convey to every stakeholder the importance of our work, supported by the entire organisation from our staff on the ground to our committees and our Board.

We'll continue to drive forward our work to emphasise the need for us to have the powers to do a truly effective job. Indeed, the future continues to be bright for the FRC as an influential and impactful regulator.

> "There is a lot that we should be proud of"

Sir Jan du Plessis Signature of J. M. R... (surname partially illegible). FRC Chair

18. Governance and transparency

The FRC is an arm's length body of the Government and a private company limited by guarantee. It reports to the Secretary of State for the DBT, and to Parliament on the discharge of its functions. The Secretary of State for Business and Trade appoints the Chair and NEDs to the FRC Board, which is responsible for the FRC's strategy and monitoring its implementation.

Our governance structure is designed to provide the Board with the assurance and confidence that any proposals considered by them take account of the impact on our stakeholder community. Further information on how the FRC engages with stakeholders is available in chapter 11.

Our structure

The FRC organisational structure illustrates reporting lines and functions.

At the top is the FRC Board.

Connected to the FRC Board are: - Executive Committee: Role: manages day-to-day operations – resources, policies and programmes - People Committee: Role: remuneration, succession planning and talent management - Audit & Risk Committee: Role: oversight of financial reporting, internal audit and risk control functions - Supervision Committee: Role: supervisory and monitoring functions - Regulatory Standards and Codes Committee: Role: regulatory standards and codes functions

Below the Executive Committee are: - Tribunal Panel (arms length) - Enforcement Committee Panel (arms length): Role: enquiries, investigations and enforcement functions (This appears to be linked to the Conduct Committee, which isn't explicitly listed in the top tier of committees but likely feeds into Enforcement).

Connecting below the four main committees (People, Audit & Risk, Supervision, Regulatory Standards) are: - Senior Advisers

Below the Senior Advisers are: - Non-Executive Advisory Panel: A pool of subject specialists to be called on by the Executive/Committees

Corporate governance statement

As a private limited company, the UK Corporate Governance Code does not apply to the FRC. However, as the regulator of the Code, the FRC upholds high standards of transparency, accountability and integrity, and aligns itself with the principles and provisions of the Code where they are relevant and applicable. As an arm's length body, the FRC also follows the Corporate governance in central government departments: code of good practice and the Regulators' Code. Areas of departure from these Codes are explained below.

Engagement with shareholders (Principle D)

As a private company limited by guarantee, the FRC has no shareholders. However, as a Non-Departmental Public Body, the FRC presents its Annual Report and Accounts to the Secretary of State for Business and Trade, and the Directors fulfil their duties as required under sections 170 to 177 of the Companies Act 2006.

Appointments to the Board (Principles J and K)

Appointments to the FRC's Board are made by the Secretary of State in accordance with the Public Appointments Process, which is not within the FRC's control. The FRC does not have a Nominations Committee, but our People Committee oversees succession planning and the skill/experience requirements for any new appointees. A member of the FRC Board sits on the recruitment panel to ensure that the skills and experience required on the FRC Board are taken into consideration.

Composition, succession and evaluation (Provision 18)

The Directors are not subject to annual shareholder re-election. The terms of appointment are set by the Secretary of State following a rigorous Public Appointments Process. The Chief Executive is employed under a fixed-term contract.

Audit, risk and internal control (Provision 30 and 31)

The Board supported the view that a viability statement would not be included, and the financial statements should continue to be prepared on a going concern basis. The financial statements confirm that it is appropriate to adopt the going concern basis of accounting and a 3-Year Plan (2023-26) was approved by the Board on 24 March

In addition, as a Central Government Body under the sponsorship of DBT, the FRC receives a Letter of Comfort from DBT which provides an assurance of financial support.

Remuneration (Principles P, Q and R and Provisions 32 to 28)

As a Central Government Body, the FRC follows Public Sector Pay Guidelines and there is greater oversight from DBT, HM Treasury and the Cabinet Office in relation to remuneration decisions across the organisation.

The FRC has a limited ability to determine remuneration and does not have a Remuneration Committee. However, the People Committee is responsible for recommending submissions to DBT 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.

Corporate governance in central government departments: code of good practice

Principle 3.3

> "The Board should be balanced, with approximately equal number of ministers, senior officials and non-executive board members."

As the FRC is not a government department, this principle is not applicable.

19. Our Executive Committee

The Executive Committee meets weekly and is chaired by the CEO. It is an opportunity for the Executive to discuss operational, strategic, financial, reputational and workforce matters in support of the day-to-day running of the organisation and to further the objectives established by the Board.

The Executive Committee is also responsible for managing the operations of the FRC in accordance with the Framework Agreement agreed with DBT.

Key areas of focus for the committee

Strategy: including the development of the Strategy, Plan and Budget, transformation strategy and office location plans. The committee also monitored progress against agreed objectives.
Operational: including reports from the Finance Director on management accounts, procurement, IT (including cyber security) and office management matters.
Risks and internal controls: in addition to routine risk reports, the committee 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: including key people-related policies, FRC culture, staff survey results and hybrid working arrangements.
Stakeholder engagement: including review of the stakeholder perceptions survey, approval of a new communications planner to enable us to better target information to our stakeholders, and consideration of feedback on key stakeholder matters and responses to FRC publications. This informs our future policy work and offers insight to possible future issues and areas of work. The committee also focused time on internal communications and messaging.
Policy: including both internal and external policy positions.

Executive Committee members (as of 31 March 2023)

Sir Jonathan Thompson Chief Executive Officer, Statutory Director and Accounting Officer (until 31 July 2023)

Role Sir Jon leads the Executive team and is responsible for the implementation of the FRC strategy. As Accounting Officer, he ensures that the FRC is run in accordance with the Framework Agreement agreed with DBT, the requirements of the Managing Public Money principles, and any additional instructions and guidance issued from time to time by DBT, 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

Role Mark leads the FRC's Regulatory Standards division covering audit, corporate reporting, corporate governance and stewardship, actuarial policy and the FRC Lab. Prior to joining the Executive Committee, Mark led the FRC's UK Audit Policy Programme and work to support the reform of international standard setting for auditors by global regulatory authorities. He is a member of IESBA and chairs the Board's Sustainability Task Force, and represents the UK on the Sustainability Standards Advisory Forum of the ISSB.

Experience Before joining the FRC, Mark was a Director at the UK National Audit Office, leading the audits of a number of major Government departments. For five years, Mark was a member of the UK Government's counter-fraud taskforce. He is a former Chair of the International Colleges of Auditors of several European defence-related organisations. Mark is an Independent Governor, Board member and Chair of the Westminster Foundation for Democracy, the UK public body dedicated to supporting democracy around the world.

Elizabeth Barrett Executive Counsel and Executive Director of Enforcement

Role Elizabeth leads the FRC's Enforcement division and is responsible for decisions in relation to enforcement proceedings involving auditors, accountants and actuaries.

Experience Elizabeth spent 30 years at Slaughter and May, including 27 years as a partner, and was head of the firm's Dispute Resolution department between 2004 and

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 and Change

Role Miranda leads the FRC's Transformation Programme, bringing together and implementing the FRC's ambitious audit, corporate governance and reporting reforms. Her role also includes development of the FRC's strategy and improving project delivery capability via the 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 while at Ernst & Young. She has also held senior secretariat roles at Safe 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.

Alex Kuczynski General Counsel and Executive Director of Corporate Services

Role Alex is responsible for the Corporate Services division which comprises the General Counsel team, Finance (including risk, procurement and facilities), Human Resources, Information Technology, and Economics, Strategy and Analytics. The role brings together the professional and support services for the FRC. Its effectiveness is critical to the Transformation Programme.

Experience Prior to joining the FRC, Alex was 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 over 20 years with the organisation held various roles and 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.

Kate O'Neill Director of Stakeholder Engagement and Corporate Affairs

Role Kate leads the Stakeholder Engagement and Corporate Affairs function with responsibility for delivering a coordinated international engagement programme for all stakeholders 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 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, holding senior leadership roles in distribution and alternative assets at AMP Asset Management, Henderson Global Investors and RBS Asset Management.

Sarah Rapson Executive Director of Supervision and Deputy Chief Executive

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, supervisor oversight of the Recognised Professional Bodies, and promoting improvement in corporate reporting through detailed technical reviews of companies' Annual Reports and Accounts.

Experience From 2016 to 2021, Sarah was the Director of Authorisations at the FCA. From 2013 to 2016, she 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 also Chief Executive of the Identity and Passport Service (now HM Passport Office) from 2010 to 2016, 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

She is currently the Senior Independent Director of North Middlesex University Hospital Trust and, from December 2021, is also a NED of the Royal Free London NHS Foundation Trust.

20. Our Board and committees

The Board is responsible for the strategic direction and supervision of the FRC, regularly reviewing operational plans and financial performance. It is also responsible for managing, assessing and mitigating risk. Of the nine Board members, eight are Non-Executive and independent members, and one is executive (the CEO). The Board has delegated its functions under the enforcement and disciplinary procedures to the Conduct Committee. The Board met ten times in 2022/23.

The roles of the Chair and the Chief Executive are held separately, ensuring a clear separation of responsibilities in line with the Corporate Governance Code. The Chair leads the Board and ensures its effectiveness through the management of Board meetings, agenda setting and supporting the optimisation of Board discussions. The Chair also takes a leading role in Board succession planning and ensuring effective communication with stakeholders.

As the Accounting Officer, the Chief Executive is personally responsible for safeguarding the public funds under their 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 for Business and Trade as the Principal Accounting Officer for all public bodies in the DBT family, who delegates powers directly to the Chief Executive through a Framework Agreement.

The Board discharges some of its responsibilities directly through Reserved Powers, and others through its two Governance Committees and three Regulatory Committees. The committees comprise of independent NEDs of the Board and are assisted by Senior Advisers who are subject matter experts and act as a sounding board for ongoing issues and topics. Observers from the FCA and DBT routinely attend the Regulatory Standards and Codes Committee. Representatives from the National Audit Office (NAO) and the Government Internal Audit Agency (GIAA) attend meetings of the Audit & Risk Committee, and a member of the BEIS Audit Committee attended the committee's October meeting.

The biographies for all members of the governance structure, the Reserved Powers of the Board and the Terms of Reference for each committee, together with a summary of Board business, is published on the FRC website.

Board members (as of 31 March 2023)

Key to Committees * AR: Audit and Risk * P: People * C: Conduct * RSC: Regulatory Standards and Codes * S: Supervision

Bold and black keyline denotes Chair of the Committee

Full biographical details of each Director are available at www.frc.org.uk

Sir Jan Du Plessis Chair

Committees: P (Chair)

Appointed 3 February 2022 Attendance: 10 of 10

Experience Sir Jan has served as Chair of various public companies over the last 18 years: BT Group plc (2017 to 2021); Rio Tinto plc (2009 to 2018); SABMiller plc (2014 to 2016); RHM plc (2005 to 2007); and British American Tobacco plc (2004 to 2009). These roles have given him extensive experience in leadership and governance of major public companies. He has also had multiple interactions with the institutional investment community and gained meaningful insight into the challenges facing the audit services sector.

Sir Jan has also served as NED of Marks and Spencer Group plc and Lloyds Banking Group plc. From 1988 to 2004, he was CFO of Richemont.

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 Adviser of Chair Mentors International.

Sir Jonathan Thompson Chief Executive Officer and Accounting Officer

Appointed 1 October 2019 Attendance: 10 of 10

Experience Sir Jon brings experience of working with Government bodies and has enjoyed a lengthy career in finance. Prior to joining the FRC, Sir Jon was the CEO of HMRC, and previously Permanent Secretary of the Ministry of Defence, jointly leading the £36bn organisation with the Chief of the Defence Staff.

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.

Sir Jon chairs the Executive Committee.

External appointments Sir Jon is the Chair of Crown Hosting Data Centres Ltd, an unpaid position. He is also the Chair of HS2 Ltd.

Angela Cha Independent Non-Executive Director

Committees: S, C, AR

Appointed 1 February 2022 Attendance: 10 of 10

Experience Angela is a solicitor and a former partner at the international law firm, Pinsent Masons, where she was joint head of the financial services sector group and head of the outsourcing, commercial and technology practice in London. She specialised in advising financial services sector clients on major change and business transformation projects. After her private practice career with Pinsent Masons, Angela continued her legal career, working with financial services sector clients on a consulting basis.

External appointments Angela is a NED on the Board of Bath Building Society, where she is Vice Chair and Senior Independent Director, and a member of the Audit, Remuneration and Nominations Committees. Outside of the financial services sector, Angela is a co-opted member of the Finance, Audit & Risk Committee at the NSPCC.

John Coomber Independent Non-Executive Director and Senior Independent Director

Committees: S (Chair), RSC

Appointed 23 July 2015 Attendance: 9 of 10

Experience John has extensive actuarial and senior management experience. He was CEO of the Pension Insurance Corporation (2009 to 2015) and at Swiss Re (2003 to 2005). He has previously been Chairman of MH (GB) Limited, The Climate Group and Climatewise, a Director of Euler Hermes and a member of the Deutsche Bank Climate Advisory Board.

John is a Fellow of the IFOA and an Honorary Fellow of the Chartered Insurance Institute.

External appointments John is a NED of Ecospray Ltd.

Sir Ashley Fox Independent Non-Executive Director

Committees: RSC, C

Appointed 1 February 2022 Attendance: 10 of 10

Experience Sir Ashley is a business consultant providing strategic advice on the European Union. He served as a Member of the European Parliament (MEP) for the South West of England and Gibraltar from 2009 to

During his career in the European Parliament, Sir Ashley was a member of the Committee for Economic and Monetary Affairs and the Committee on Industry, Research and Energy. He was knighted in 2019 for political and public service.

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.

Hannah Nixon Independent Non-Executive Director

Committees: RSC (Chair), AR, S

Appointed 24 June 2021 Attendance: 10 of 10

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, and a NED of Thames Water Utilities Ltd, Worldpay and National Grid Electricity System Operator.

Clare Thompson Independent Non-Executive Director

Committees: AR, P, RSC

Appointed 1 February 2022 Attendance: 9 of 10

Experience Clare was a Partner at PwC until her retirement in

There 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, she has built a portfolio of non-executive roles and has served as Senior Independent Director and Chair of the Audit Committee of Bupa, as a NED of Direct Line Insurance Group plc, Retail Charity Bonds plc, and Miller Insurance Services LLP and as Treasurer of the Disasters Emergency Committee.

Clare is a Fellow of the ICAEW.

External appointments Clare is a NED and Chair of the Audit Committee at M&G plc.

Ruwan Weerasekera Independent Non-Executive Director and NED designated for workforce engagement

Committees: P (Chair), S, AR

Appointed 21 June 2021 Attendance: 9 of 10

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 a NED of UK Research and Innovation, and chairs their Audit and Risk Assurance Committee.

David Willis Independent Non-Executive Director

Committees: C (Chair), P

Appointed 1 February 2022 Attendance: 9 of 10

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 to 2012 and Joint CEO of Herbert Smith Freehills from 2012 to

He was previously a member of the governing body of Queen Mary University of London, where he chaired the Audit & 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 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 is also a NED and member of Primrose Street Ltd.

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 to develop the agendas for Board and committee meetings and to ensuring that all governance procedures are complied with. The removal and appointment of the Company Secretary is a matter reserved for the Board. Francesca Carter stepped down in May 2022, and the Board appointed James Schirn as Company Secretary.

Transparency

The FRC reports to the Secretary of State for the Department for Business and Trade and Parliament on the discharge of its statutory functions, and lays its Annual Report and Accounts before Parliament.

Board appointments, diversity and succession planning

Appointments to the Board are made by the Secretary of State for the Department for Business and Trade in accordance with the Public Appointments Process and the Governance Code for public appointments.

The Board Diversity 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.

The Board annually reviews the Board skills matrix and succession plans to ensure it has relevant expertise to support the strategy. The Board has commissioned the recruitment of three new NEDs through the public appointments process for the coming year, with a focus on appointing Directors who can bring actuarial, local audit, and investment management experience to the Board. The recruitment of these additional members reflects our expanding remit and responsibilities in relation to actuarial regulation and local audit and will enhance the Board's diversity and representation of our key stakeholders as we transition to ARGA.

Signature of J. M. R... (surname partially illegible).

Board induction and training

A detailed induction programme tailored for the Chair and all new NEDs took place in the year 2022/23. The programme included meetings 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 FOIA. A Board and committee training and development plan has also been produced to support the Board's continuous learning in areas such as cyber security, climate governance, GDPR and diversity and inclusion.

Independence and conflicts

The FRC attaches special importance to avoiding any potential conflict between the work and values of the FRC and the personal interests of its staff, Directors and its Non-Executive Advisers. Please see more on our ethics and compliance on page 60.

Key Board matters 2022/23

Board meeting agendas are carefully tailored in advance by the Chair, Chief Executive and the Executive team to ensure an appropriate balance between strategic and operational matters. The Board agenda also includes a report from the Chief Executive on key operational matters, the Transformation Programme and, on a quarterly basis, management information packs provide key information on the delivery of the strategy and finances.

The Chairs of the Governance and Regulatory Committees update the Board on the proceedings of their meetings, including key discussion points and matters for approval. Please see the reports on the individual committees for more detail on their areas of focus on pages 108-119.

The NEDs assess, constructively challenge, and decide on the Executive's proposals and matters for decision to ensure they are aligned with the FRC's strategy and purpose.

The focus of the Board's business throughout the year can be assessed through the lens of seven broad themes.