FRC promises corporate governance and reporting crackdown
The Financial Reporting Council (FRC) is to expand its monitoring of corporate governance and reporting standards as it considers the effectiveness of its new governance code.
In its annual report for the year ending 31 March 2019, the FRC said it will continue to tackle poor-quality audit work, boost its enforcement resourcing by 25% and improve the quality of reporting.
During the year the FRC substantially revised the UK’s Corporate Governance Code and consulted on an overhaul of the UK Stewardship Code to ensure both Codes are fit for purpose, better aligned, and reflect today’s challenges.
“The revised UK Corporate Governance Code was well received, and we will extend our monitoring of corporate governance practice and reporting and consider how effectively the new Code is being applied.
“However, that effectiveness depends on investors holding companies to account,” the report stated.
The Council said it will also continue to consult with stakeholders on the revised UK Stewardship Code to deliver more effective stewardship and improve reporting requirements.
The FRC’s Corporate Reporting Review team received 28 complaints related to corporate reporting matters during the 2018/19 year. Fifteen of these related to financial statements reporting issues, including impairment, measurement and valuation issues, and disclosures.
The complaints came from a
range of parties including investors, fund managers, journalists and academics and
involved companies from private and small AIM companies to large FTSE 100
The FRC also revealed the remuneration packages of its key directors.
The remuneration of the highest paid director, Stephen Haddrill, was £389,879 in 2018/19 – over four times the median remuneration of the workforce, which stood at £85,949.
Haddrill, who is executive director at the FRC, received a total of £431,062 for the year when taking into account the additional £33,789 given in lieu of pension and £7,394 for the voluntary sale of annual leave. His total pay increased from £423,691 the previous year.
The report also showed only 75% of audits by FTSE 350 companies required no more than limited improvements – falling short of the FRC’s 90% target.
To tackle the issue, the FRC said 100% of audits will be expected to require no more than limited improvement by 2020/2021.
Following the independent review of the FRC by Sir John Kingman, the FRC will transition into the Audit, Reporting and Governance Authority (ARGA) under a new mandate, once established by legislation.
Sir Win Bischoff, chairman of the FRC, said: “Our latest annual report reflects the FRC’s commitment to delivering high quality audit, corporate governance and financial reporting, which remain vital to the success of our market economy.
“2018/19 also led to an independent review of the FRC, which we fully supported, and has contributed to our eventual transition into a new regulatory body.”