FRC Planning for Brexit

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As work continues to transition the United Kingdom’s Financial Reporting Council (FRC) into the new Audit, Reporting and Governance Authority (ARGA), the FRC presented its Annual Report to Parliament on September 5, 2019. Its report contains many informative sections including the final reports from Chairman Winfried Bischoff and Chief Executive Officer Stephen Haddrill, and an extended section on principal risks, how they are mitigated and the direction of the risk trend.

The FRC states it has been “working with the Government to set up the new UK Endorsement Board, which will determine whether IFRS should be endorsed for use in the UK after the UK’s exit from the EU.” The Board will also do “work relating to the registration of auditors once the UK becomes a ‘third country’ in the context of EU legislation, and EU countries become ‘third countries’ in the context of UK legislation.”

In 2015, the FRC set a goal that by 2018/19 the auditors of FTSE 350 companies would have at least 90 percent of those audits inspected requiring no more than limited improvements. Their assessment of the reviews carried out this year was 75 percent required no more than limited improvements, compared to 73 percent the prior year. Yet for 2020/21 onwards they have set a new target for 100 percent to require no more than limited improvement. The FRC reported that one major firm showed an overall lack of improvement in quality over the past five years and the FRC “therefore required the firm to prepare and implement a detailed action plan to improve quality.” FRC is recommending greater transparency of its inspections.

During the concluded year the FRC imposed multimillion-pound fines on four major international CPA firms, reflecting the review of its sanctions that was carried out in 2017.

David Rule joined the FRC on September 1, 2019, as the Executive Director of Supervision. He is reporting to CEO Haddrill, who is leaving the FRC by the end of this year. Mr. Rule is to lead the FRC’s audit quality and corporate reporting review functions.