The Financial Reporting Council UK (FRC) is a regulatory body that oversees corporate governance and reporting standards in the UK. Established in 1990, the FRC’s main objective is to promote high-quality financial reporting and auditing practices that enhance public trust in the UK’s corporate sector. The FRC sets accounting, auditing, and actuarial standards for all listed companies in the UK and monitors compliance with these standards.
Examples of the FRC’s work
The FRC plays a crucial role in promoting transparency and accountability among UK businesses. Here are some examples of the FRC’s recent work:
Review of financial reporting by companies
The FRC regularly reviews the quality of financial reporting by companies and issues guidance where it identifies areas for improvement. In its most recent review, the FRC found that many companies did not provide sufficient information on the potential impact of Brexit on their business operations. As a result, the FRC issued guidance to companies on how to improve their disclosures on Brexit risks.
Investigation into the collapse of Carillion
Following the collapse of construction firm Carillion in 2018, the FRC launched an investigation into the conduct of the company’s directors and auditors. The investigation concluded that there were “significant failings” in the company’s financial reporting and auditing, and recommended improvements to both the standards and enforcement of corporate governance in the UK.
Comparisons with other regulatory bodies
The FRC is not the only regulator of corporate governance and reporting standards in the UK. Other bodies include the Prudential Regulation Authority (PRA), which oversees the regulation of banks and insurers, and the Financial Conduct Authority (FCA), which regulates financial markets and consumer protection. While these bodies have overlapping responsibilities with the FRC, their focus is narrower and more specialized.
Advices from the FRC
The FRC has issued a number of advisories to companies in recent years, aimed at improving the quality of their financial reporting and auditing practices. Here are some examples:
Guidance on going concern assessments
In 2019, the FRC issued guidance to audit committees on how to assess the appropriateness of the going concern assumption in their company’s financial statements. The guidance emphasized the importance of considering a range of scenarios when assessing whether a company is a going concern, particularly in times of economic uncertainty.
Advice on cyber risk disclosures
The FRC has also issued advice to companies on how to improve their disclosures around cyber risks. In its most recent guidance, the FRC recommended that companies disclose specific details about the nature and extent of cyber risks they face, including any previous breaches or incidents.
FAQs about the FRC
Here are some frequently asked questions about the FRC:
What powers does the FRC have?
The FRC has the power to investigate and discipline accounting firms and auditors for misconduct. It can also impose sanctions on companies that fail to comply with its reporting and governance standards.
How is the FRC funded?
The FRC is funded through fees paid by accounting firms and other regulated entities. It operates independently of government, but is accountable to Parliament for its performance.
What is the role of the FRC in promoting diversity?
The FRC has a responsibility to promote diversity and inclusion in corporate governance and reporting. It has issued guidance on improving diversity in boardrooms and providing greater transparency around pay disparities between men and women.
What is the relationship between the FRC and the EU?
The FRC is responsible for setting UK-specific standards for financial reporting and auditing, but it works closely with its counterparts in the EU to ensure consistent application of these standards across borders.
How does the FRC enforce its standards?
The FRC has a number of enforcement powers, including the ability to investigate complaints and impose sanctions on violators. It can also refer cases to other regulatory bodies, such as the Serious Fraud Office, where appropriate.
Conclusion
The Financial Reporting Council UK plays a critical role in promoting high-quality corporate governance and reporting standards in the UK. Through its work, the FRC helps to ensure transparency and accountability among UK businesses, which is essential for maintaining public trust in the corporate sector. By providing guidance, advice, and enforcement when necessary, the FRC helps to protect the interests of investors, employees, and other stakeholders in the UK’s economy.
