21 Jul Annual report time for the FRC
On 19th July the Financial Reporting Council (FRC) issued its annual report and accounts for 2016/17. Although, as you’d expect from an annual report, this was primarily a chance to review and report on the year in question, the FRC also followed its own reporting best practice recommendations and took the opportunity to look forward.
Launching the report the FRC’s chairman, Sir Win Bischoff, commented that the year in question had been one of “significant change for the FRC itself and in the external environment in which we operate, including greater interest from and engagement with wider stakeholders.” On the positive side Sir Win highlighted the strength of the UK corporate governance code and the way in which it helped to create an attractive investment market, drawing funds and support from overseas.
However, he also drew attention to the way in which continued corporate scandals have created a perception that businesses may not be operating in the interests of all stakeholders. This has led to an increased debate on the role of corporate governance, with the UK Government paying its part in promoting reform.
In its report the FRC highlights their intention to continue to promote reform of the governance code to ensure that it meets the needs of all stakeholders. Its forward strategy includes promoting the importance of audit quality, clear and concise reporting and effective stewardship. This it will do partly through a review of the corporate governance and stewardship codes in 2017/18.
The FRC isn’t complacent over its own role either. In the period under review thanks to efficiency savings it made a surplus of £2.5 million. It intends to continue to make improvements through sharing and promoting best practice alongside a review of culture, mission, vision and values within the organisation. Pay and performance strategies are also to be reviewed.
Looking back over the past year the FRC reports that audit quality seen in the FTSE 350 is improving. The FRC completed 203 company reviews (against a target of 250) in the period and although the review process highlighted a generally high standard of reporting, in 44% of cases further explanations were required indicating that there is room for further improvement, particularly in the area of communication.
139 audit quality reviews were also completed in 2016/17. Whilst these revealed an improvement in audit quality, standards varied from firm to firm. Accordingly, the FRC is looking towards policies which will deliver greater consistency across the market including strengthening the audit code.