The Financial Reporting Council (FRC) has published for consultation its draft 2021/22 Strategy, Plan & Budget which reflects its efforts to build the enhanced capacity and capability necessary to transform into the new Audit, Reporting and Governance Authority (ARGA)
Over the past year, the FRC has, among other things, strengthened its supervision of audit firms to promote better audit quality, taken the first steps towards operational separation of their audit businesses, set up a competition policy team and created a new stakeholder engagement and corporate affairs function.
In 2021/22 the FRC expects costs to increase by £6.8m, almost half of which will fund the organisation’s development, and half the establishment of the UK Endorsement Board (UKEB) following the UK’s exit from the EU.
Overall, the combined budgeted cost of the FRC and the UK Endorsement Board will increase by 15% to £52.2m (2020/21: £45.4m).
The FRC plans to increase the amount raised through the preparers levy by 16.8%, which will require an increase of 24% in the rates applied. This is partly due to the drop in FTSE market capitalisation from the previous year following the effects of Covid-19.
The number of employees will increase by 16% to 417 by March 2022 (budgeted March 2021 headcount: 358). This will see staff costs rise from £27.4m to £34.7m with additional supervisory and technical staff set to be hired to strengthen the regulator’s oversight responsibilities. This will see the head count increase from 347 to 396 by March 2022.
Moving forward, the FRC will continue to develop a solid foundation on which to expand further. As the UK moves beyond its exit from the EU, the FRC will also support the set-up and staffing of the UK Endorsement Board (UKEB) for International Financial Reporting Standards (IFRS).
The FRC said it expected government to set out proposals for ARGA to have a statutory general objective in line with our current purpose, supported by audit quality and competition objectives and a clear set of regulatory principles.
During 2020 the FRC consulted on changes to its governance structure designed to streamline the number of councils and committees and support greater executive-led decision-making. These changes will take effect in 2021. Having appointed an interim chair in October 2020, the plan is to appoint a permanent Chair and a full complement of non-executive directors this year.
The FRC’s CEO, Sir Jon Thompson said: ‘Last year we set out a strategy to take the FRC through a period of significant transformation to create ARGA. Our transformation programme has proceeded with vigour, delivering reform which is not dependent on legislation, and developing the policy and resourcing options where legislation is required. By maintaining momentum as we deliver on our strategy, our intention is to create ARGA, fully formed, as soon as the legislation permits.
‘In this Plan and Budget, we have assumed a further two-year transition period to the creation of ARGA in 2023. We will also be reviewing and implementing a new funding model, ahead of it being put on a statutory footing. We look forward to engaging with stakeholders on the detail of ARGA’s funding proposals in due course.’
The 2021/22 Strategy and Plan & Budget consultation will be open for comment until Friday 12 March. Respondents should submit their comments to FRC.Plan.Budget@frc.org.uk