FRC says budget under pressure due to audit reforms
6 Feb 2014
6 Feb 2014
At an open meeting discussing priorities for the year ahead, the Financial Reporting Council (FRC) reported that while audit quality is improving, it remains variable overall and said more work needed to be done to establish what stakeholders expect from audit.
During the session, held at the end of January, the regulator confirmed it is taking action to address specific concerns over banking audits. It also highlighted a number of areas of concern, including poor quality reporting by some smaller and AIM-listed companies and low levels of engagement by investors.
The regulator also set out its spending plans for 2013/14, stating that changes to audit rules and broader inspection duties would result in 'upward pressure on the 2014/15 budget'.
The FRC is planning to increase preparers' levy rates for smaller entities (up to £1bn market cap) by 2.2% and for larger companies (£1bn plus) by 4.8%. Professional bodies' contributions will also increase against 2013/14. Core costs will rise by 2.2%, AQR by 44% and disciplinary costs by 30%. Final figures will be set after the FRC budget meeting in early April.
Focusing on audit quality and perception of audit functions, the FRC said: 'There was a need to understand better what people really wanted from audit and to encourage realistic expectations of what could be delivered.'
One priority for the year ahead is further consultation on updating the UK Corporate Governance Code, where the biggest issue will be changes to the guidance on risk management and going concern.
The FRC also confirmed that there were disparate views in feedback to the recently closed second consultation on the Sharman inquiry, which focused on reporting on risk and going concern. Many respondents had differing views on whether boards could attest to the longer term sustainability of the business.
Further changes to the Code would aim to encourage improvements in the quality of explanations where boards chose not to comply with a code provision, reflect the recent consultations on remuneration reporting, and implement recommendations from the Competition Commission on audit reform.
The FRC said it will be examining twice the number of audit inspections in future, due to new requirements from the EU and the Competition Commission inquiry, and will also take over responsibility for inspecting local government audits.