However, the UK audit watchdog could do more to help itself – particularly when it comes to convincing institutional investors who are the most concerned about its independence – by making its processes and outcomes more transparent.
The survey, which was carried out independently by market researcher ComRes, is the broadest the FRC has undertaken among its stakeholders, including auditors, actuaries, companies, investors and professional bodies.
According to Meghan Oliver, an associate director with ComRes, it proved difficult to unite the attitudes, experiences and recommendations of such a varied group of stakeholders.
“Given the variety of areas that the FRC covers, stakeholders represent a diverse array of professions with a diverse array of interests, “ she said. “Bringing together the views of these individuals – who sometimes only engage with one part of the FRC – appears to be a unique challenge.”
Nevertheless, a number of clear messages for the FRC come across, not least that as an organisation that holds others accountable, it also needs to be seen to be holding itself accountable to the same measures.
More than a quarter (29%) of institutional investors told researchers that they did not believe the FRC was independent of the audit profession. Reasons cited include the fact it hires many ex-auditors, it receives funding from audit firms, and a suspicion that it does not always hold auditors as accountable as they should be.
As one stakeholder put it, “When you’re setting standards of governance for other companies and telling companies what they should be doing, then you have to be whiter than white”.
Stakeholders want more transparency in the FRC’s disciplinary and enforcement activities. Some felt that the regulator “lacked teeth” and that the length of time it took over its enforcement activities undermined the actual results.
They also want the FRC to be more outcome-driven and less process oriented. Some stakeholders thought it was “too opaque in its own processes and outcomes of reviews” while others felt that it was too focused on generating regulation rather than on working out whether the outcomes were actually meeting the need for change.
“It always feels like they care more about the regulation and the avoidance of anything bad happening rather than the greater good,” one actuary commented.
One way round this issue would be for the FRC to step up its communication about its goals and activities, the researchers suggest. They point out that those stakeholders who are more engaged with the FRC have a greater understanding of its internal processes and constraints. Increasing outreach and communication with less-engaged stakeholders could help to improve favourability and perceptions of transparency.
The research found stakeholders were broadly positive about the FRC’s work in corporate governance, reporting and audit, and less convinced about it as far as investor stewardship was concerned.
Oliver said that generally the FRC was in a strong position to address some of the feedback. “Overall familiarity is high and stakeholders are more likely to be favourable than not towards the organisation.
“This suggests that by addressing some of these concerns, the FRC is well-placed to further increase its favourability and trust among key audiences in the year ahead.”
In response, the FRC says that it has already made changes to meet many of the issues raised, including revising its governance structure to improve processes, publishing its register of interests and investing in its enforcement division.