FRC issues draft three-year plan and budget to prepare for the transition to ARGA
The FRC has issued a draft plan, setting out its proposed key areas of focus in 2022/23 as it prepares to transition to the Audit, Reporting and Governance Authority (ARGA).
On 18 January 2022, the Financial Reporting Council (FRC) published its draft 3-year Plan for 2022-25. This acknowledges the FRC’s continued commitment to being an effective and transparent regulator as it prepares to transition to the Audit, Reporting and Governance Authority (ARGA).
In 2022/23 overall costs are expected to increase by £9.1m (17.7%) from £51.5m to £60.6m. Similarly, the FRC’s headcount is expected to increase 17% to 489 by March 2023. The FRC anticipates similar growth in 2023/24, being the year in which it expects ARGA will be created and the first year of statutory funding, followed by a period of stability and consolidation from 2025 onwards.
The FRC’s objectives remain the same for 2022-25, however it has adapted its audit market objective slightly to recognise ARGA’s expected competition objective, and choice, both of which are important elements of a resilient audit market.
2022/23 priorities and deliverables
In 2022/23, the FRC/ARGA plans to focus on those areas where it anticipates either an increased volume of work to meet its statutory obligations or where investment in new capacity is justified. These include:
(i) Regulatory Standards and Codes
- The periodic review of FRS 102, adoption of ISA (UK) 500 ‘Audit Evidence’ and ISA (UK) 600 ‘Group Audits’.
- Alignment of its Corporate Governance & Stewardship monitoring and evaluation programme
- International influencing of auditing and ethical standards, and significant contribution to non-financial reporting developments in the UK and internationally.
- Preparation for ARGA’s local audit systems leader role.
- Activities focused on improvements and innovation to support high-quality reporting and audit quality including establishment of a new ‘Audit Sandbox’.
- Promoting the use of technology throughout its policy areas.
- Increased stakeholder engagement with impact and influence, including an overhaul of planned publications focused on collective impact.
- Deliver a full programme of high-quality Audit Quality Review inspections, Corporate Reporting reviews and professional oversight visits and publish associated reporting, including thematic reviews.
- Carry out ISQC inspection work and prepare for ISQM1 taking effect.
- Increase supervision of audit firm culture.
- Assess audit firms’ adoption of operational separation principles.
- Implement PIE audit registration decision-making.
- Increase intensity of forward-looking supervision of audit firms, with more ‘joined up’ regulation of firms’ actions on quality.
- Negotiate mutual recognition agreements resulting from the UK’s EU exit.
- Perform equivalence and adequacy assessments.
- Fair, robust, and timely case closures or conclusion through focus of investigations, prioritisation, training and recruitment.
- Upskilling and training to respond to changes in the Audit Enforcement Procedure from January 2022 and implement future powers arising from regulatory reform.
- Publication of the Annual Enforcement Review, driving improved behaviours through messaging case outcomes.
(iv) Corporate Services
- Develop a statutory funding model for ARGA.
- Develop and implement an integrated information management strategy, including a medium-term IT strategy and enhanced data analytics and reporting.
- Enhance cybersecurity risk management.
- Appropriate workforce planning, aligned with the FRC’s business planning cycle and designed to incentivise, reward, and retain key skills.
- Strengthen its support infrastructure, including in finance and procurement systems, internal controls and IT.
- Legal support for regulatory reform and legal and operational support for the UK Endorsement Board.
The FRC’s ESG and Climate Group utilises cross-FRC collaboration to deliver a multi-faceted work plan. The data gathered from this work will help inform the FRC’s policymaking, its understanding of the regulatory landscape, baseline appropriate measures of improvement, international influencing and
a co-ordinated approach to working with other regulators on issues of sustainability. The FRC has a centralised, co-ordinated ESG and Climate strategy intended to ensure that all its ESG and climate-related activities link back to its overall purpose to help it achieve the following desired outcomes:
- Improved corporate governance of ESG and climate-related matters;
- Enhanced consistency and comparability of corporate reporting;
- Enhanced confidence in the disclosures of ESG and climate information, and
- Improved investor engagement on ESG and climate-related matters.
The FRC’s 2022/23 Strategy and Plan & Budget consultation will run until Tuesday, 1 March 2022. Comments can be submitted to FRC.Plan.Budget@frc.org.uk.