REPORTING OF NON-FINANCIAL CONDUCT TO THE FINANCIAL REPORTING COUNCIL
News types: Policies and Responsibilities
Published: 24 July 2019
The FRC has written to the six largest audit firms setting out its expectations for reporting of non-financial conduct to the FRC as part of its Audit Firm Monitoring and Supervision (AFMAS) responsibilities.
A copy of the letter can be viewed below.
As you are aware, the FRC’s Audit Firm Monitoring and Supervision (AFMAS) framework
focuses on five key pillars: leadership and governance, values and behaviours, business
models and financial soundness, risk management and control and audit quality.
Under the values and behaviours pillar, we wish to build on our current framework of
interaction with the firm to understand and assess the design and effectiveness of the policies
and procedures the firms have in place to facilitate the reporting of and response to nonfinancial
conduct matters. Please would you provide us with your policies and procedures in
relation to internal whistle-blowing, grievances, disciplinary matters and complaints from
individuals outside the firm. The policies etc should include those which cover bullying and
harassment, discrimination and alcohol/ substance abuse and the material should include
extracts from intranet pages that provide guidance to partners and staff where applicable and
relevant extracts of Board reporting packs (if applicable). The information is requested by no
later than 30 August 2019 and any issues in meeting this deadline should be communicated
to the FRC as soon as practicable.
Under the AFMAS framework we are also seeking to establish a clear process for the regular
reporting to the FRC of the level of non-financial conduct complaints and how those complaints
are dealt with, on a quarterly basis starting from the quarter ending 30 September 2019. This
will provide us with valuable assurance over the effectiveness of the monitoring arrangements
that firms have in place, along with a picture across the industry of potential emerging areas
of concern. Attached at Appendix 1 is the form for completion and submission to the FRC at
the end of each quarter. The first period for reporting is the quarter ended 30 September
2019, which, is requested by 11 October 2019.
Alongside the regular quarterly reporting, and as set out in the “Risk Reporting protocol” letter
of May 2017, we expect you to notify the FRC of incidents which could pose a threat to the
reputation the UK firm. This includes matters related to non-financial conduct. The
determination of what matters are ‘significant’ in this regard will be subject to the firm’s
judgement but should not be limited to audit partners and RIs but include all partners of the
firm. Both the periodic and ad hoc reporting should be made to [email protected] with the
subject of ‘non-financial conduct’.
We confirm that the information provided to the FRC will be treated as received in accordance
with S1224A Companies Act 2006 and therefore subject to the prohibitions on onward
disclosure and the limited exemptions. For example, information may be disclosed within the
FRC for the purpose of carrying out its functions, to an organisation listed in Part 1 of Schedule
11A Companies Act 2006 or for the purposes set out in Part 2 of that Schedule.
We encourage a full and frank exchange of information between your firm and the FRC.
A copy of this letter has been shared with your INEs.
A copy of the letter can be viewed below.
As you are aware, the FRC’s Audit Firm Monitoring and Supervision (AFMAS) framework
focuses on five key pillars: leadership and governance, values and behaviours, business
models and financial soundness, risk management and control and audit quality.
Under the values and behaviours pillar, we wish to build on our current framework of
interaction with the firm to understand and assess the design and effectiveness of the policies
and procedures the firms have in place to facilitate the reporting of and response to nonfinancial
conduct matters. Please would you provide us with your policies and procedures in
relation to internal whistle-blowing, grievances, disciplinary matters and complaints from
individuals outside the firm. The policies etc should include those which cover bullying and
harassment, discrimination and alcohol/ substance abuse and the material should include
extracts from intranet pages that provide guidance to partners and staff where applicable and
relevant extracts of Board reporting packs (if applicable). The information is requested by no
later than 30 August 2019 and any issues in meeting this deadline should be communicated
to the FRC as soon as practicable.
Under the AFMAS framework we are also seeking to establish a clear process for the regular
reporting to the FRC of the level of non-financial conduct complaints and how those complaints
are dealt with, on a quarterly basis starting from the quarter ending 30 September 2019. This
will provide us with valuable assurance over the effectiveness of the monitoring arrangements
that firms have in place, along with a picture across the industry of potential emerging areas
of concern. Attached at Appendix 1 is the form for completion and submission to the FRC at
the end of each quarter. The first period for reporting is the quarter ended 30 September
2019, which, is requested by 11 October 2019.
Alongside the regular quarterly reporting, and as set out in the “Risk Reporting protocol” letter
of May 2017, we expect you to notify the FRC of incidents which could pose a threat to the
reputation the UK firm. This includes matters related to non-financial conduct. The
determination of what matters are ‘significant’ in this regard will be subject to the firm’s
judgement but should not be limited to audit partners and RIs but include all partners of the
firm. Both the periodic and ad hoc reporting should be made to [email protected] with the
subject of ‘non-financial conduct’.
We confirm that the information provided to the FRC will be treated as received in accordance
with S1224A Companies Act 2006 and therefore subject to the prohibitions on onward
disclosure and the limited exemptions. For example, information may be disclosed within the
FRC for the purpose of carrying out its functions, to an organisation listed in Part 1 of Schedule
11A Companies Act 2006 or for the purposes set out in Part 2 of that Schedule.
We encourage a full and frank exchange of information between your firm and the FRC.
A copy of this letter has been shared with your INEs.