In a letter to business secretary Greg Clark, FRC chief executive Stephen Haddrill explains that, during the transition to the new statutory regulator, the Auditing, Reporting and Governance Authority (ARGA), it will remain committed to tackling “deficiencies in audit and reporting quality vigorously”. This will include “addressing the need for auditors to do more work now to assess whether companies are a going concern and to address the risk of fraud”.
Haddrill was responding to a letter from Clark setting out the FRC’s priorities in relation to implementation of Sir John Kingman’s recommendations. In it, Clark pointed out that the transition of the FRC into ARGA will require a programme of transformation.
“While some of the changes will require legislation, many aspects of transformation can and should be undertaken or initiated in advance of legislation,” he said.
“Taking forward those transitional steps should therefore be a priority for the FRC over this year.”
Clark went on to refer to Grant Thornton chief executive David Dunckley’s controversial assertion in evidence to the Business, Energy and Industrial Strategy Committee in February that auditors do not look for fraud.
The business secretary suggested that the FRC might have to act “to ensure that auditors understand the expectations on them”. “I would encourage the FRC to take steps to ensure that audit firms are correctly applying audit standards in relation to fraud,” he added.
In the letter, he also said that he expected the FRC to continue to discharge its statutory and no-statutory functions during the transition period. Where these overlapped with the Kingman recommendations, the Competition and Markets Authority’s audit market review and Sir Donald Brydon’s review of audit quality and effectiveness, he would expect the FRC to work closely with the review teams “to consider the timing and ensure the coherence of any action taken”.
In his response, Haddrill added that the FRC would be recruiting senior staff to help it take on the additional challenges involved in the transition to ARGA, as well as Brexit and its programme of improving corporate governance and the Stewardship Code.
However, he warned that finding and appointing so many high quality people in such a short period of time would be challenging in itself. And he urged Clark to give the FRC “more flexibility” over recruitment.
Last month, the FRC revealed that the cost of recruiting more staff to meet the additional requirements could push its 2019/20 annual budget up by as much as 25%.