In its draft Plan and Budget 2019/20, issued yesterday, the regulator set out an initial budget of £38.1m, up £3.7m on the expected outturn for 2018/19.
The large rise will fund an extra 80 staff to work on the FRC’s expanded activities in audit quality reviews, audit firm monitoring and supervisory approach, and enforcement work. The FRC says that this reflects, in part, a “catch-up for recruitment delays in a highly competitive market”.
On top of that, it estimates that it will require additional funding of £2.4m to £4.9m to deal with implementing implementing the Kingman recommendations, including the establishment of the Audit Reporting and Governance Authority (ARGA), plus further costs relating to Brexit.
As these extra costs are dependent on future government decisions, it says it is impossible to accurately forecast how much the total expenditure might be.
2019/20 will be a transition year for the FRC, provided the government is able to find parliamentary time to pass the necessary legislation to set up ARGA. This does not mean a deceleration in activity for the regulator: rather the opposite, as chief executive Stephen Haddrill makes clear.
“In 2019/20, as we begin the transition to the new authority, ARGA, we will use our powers to promote the public interest in transparency and integrity in business,” he says.
“We are pursuing a step change in audit quality – revising audit and ethical standards, expanding our audit quality review regime, extending our audit firm monitoring and supervisory approach, and pursuing a heavier enforcement caseload.”
He adds that the FRC will be working with the Competition and Markets Authority on its proposals for reform of the audit market and with Sir Donald Brydon on his review of the role and purpose of audit.
It will also be increasing its oversight of the quality of corporate reports, heading up the debate on the future of corporate reporting, and enhancing investor engagement through a new stewardship code.
In its plan for the year, the FRC discloses that the government has already asked it to go ahead with implementing some of the Kingman Review recommendations that do not require legislation. So it is expanding its work on the quality of the parts of audit conducted overseas, extending the scope of its corporate reports review to cover the whole of the annual report, and widening its work on oversight of the accountancy profession.
In addition, the regulator will carry out consultations on changes to the regulatory framework, including on whether to “reclaim the approval and registration of audit firms conducting public interest audits”, and what sanctions should be applied under a centralised approval and registration regime.
The FRC also reveals that it is “preparing voluntarily” to adopt Freedom of Information provisions ahead of its formal designation as a public authority. This is in line with the Kingman review.