The FRC has recently published consultation proposals for its reform. The proposals target four main areas, with substantive proposals to reform the FRC’s structure and disciplinary powers. Although some may consider the proposed reforms to be a mere tinkering at the edges, the substantive proposals are likely to be of interest to those who fall within the FRC’s expansive remit – namely, accountancy and actuarial firms.
As the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment, the FRC’s structure is unduly convoluted and complicated. It currently consists of seven different bodies, including the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards and the Accountancy and Actuarial Disciplinary Board (AADB) . The FRC is also responsible for the various guidelines produced for several different professions, including the recently published Technical Actuarial Standards, the UK Corporate Governance Code and Stewardship Code and maintaining the International Standards on Auditing.
If you find this all rather confusing you are not alone; the consultation itself accepts that even those most familiar with its structure still find it hard to understand. The reform proposals put forward a streamlined structure, whereby the number of bodies will be merged into two sub committees reporting directly to the FRC Board, namely a Committee for Codes and Standards and a separate Conduct Committee.
The consultation proposes that the Codes and Standards Committee will undertake the work currently conducted by the Auditing Standards Board, the Board for Actuarial Standards and the Auditing Practices Board. The Conduct Committee will converge the work currently undertaken by the Financial Reporting Review Panel, the Professional Oversight Board (POB), the Audit Inspection Unit (AIU) and the AADB.
The basic idea behind the proposed reforms is both to simplify the structure of the FRC, and also to ensure that the FRC can speak as a whole for all professionals on issues which require input at the EU and international level.
The consultation also makes important proposals in respect of the independent supervision and disciplinary arrangements relevant to the accountancy profession. It proposes that the Conduct Committee will have an express power of referral or power of enforcement following findings of poor audit quality, which neither the POB nor AIU currently have.
In relation to independent disciplinary arrangements, the AADB accountancy scheme currently provides that where a decision to prosecute is made the matter must proceed to a full hearing before disciplinary action can be taken. The consultation proposes that in appropriate circumstances the FRC should be able to propose sanctions which can be accepted by firms or individuals without having to bring the matter to a full public hearing.
It will be interesting to see what responses are received by the FRC before the consultation deadline in January 2012. Many are likely to welcome the FRC’s proposals to simplify its structure, with the caveat that the key differences between the separate professions for which the FRC is responsible (from corporate governance to accountants and actuaries) continue to be recognised and adequately represented.