UK Financial Reporting Council

UK Financial Reporting Council
Name	Financial Reporting Council
Formed	1990 (as Accountancy Foundation), 2012 (as independent regulator)
Jurisdiction	United Kingdom
Headquarters	London
Chief1 position	Chair
Chief2 position	Chief Executive

UK Financial Reporting Council

The Financial Reporting Council is the independent regulator responsible for promoting high-quality corporate reporting and auditing practice in the United Kingdom. It interacts with institutions such as the Prudential Regulation Authority, the Bank of England, the Financial Conduct Authority, and engages with international bodies including the International Financial Reporting Standards Foundation, the International Auditing and Assurance Standards Board, and the European Commission. Its remit touches the work of listed companies like HSBC, BP, and GlaxoSmithKline, professional bodies such as the Institute of Chartered Accountants in England and Wales, and standard-setters including the Accounting Standards Board.

History

The FRC traces roots to earlier bodies created after reforms influenced by events such as the Cadbury Report and the Greenbury Report. Successor entities emerged from the Accounting Standards Committee and the Accounting Standards Board, aligning with responses to corporate failures exemplified by the collapses of Enron, WorldCom, and Lehman Brothers. Reforms following the King Report and debates in the House of Commons resulted in the FRC's evolution into a statutory regulator amid inquiries like the Gow Review and reports from the Competition and Markets Authority. Its development intersected with reforms in the Companies Act 2006 and initiatives by the Department for Business, Innovation and Skills.

Functions and Powers

The FRC's statutory responsibilities encompass setting codes that affect entities including London Stock Exchange listed companies, trustees of National Health Service pension schemes, and audit firms such as PwC, Deloitte, KPMG, and Ernst & Young. It issues standards aligned with frameworks from the International Accounting Standards Board and the International Federation of Accountants, and enforces compliance through oversight mechanisms used by regulators like the Serious Fraud Office and tribunals including the Upper Tribunal of the United Kingdom. The FRC has powers to appoint investigatory committees, require remedial action from directors of firms such as Tesco, and implement sanctions that may interplay with directives from the European Securities and Markets Authority.

Structure and Governance

The FRC's governance includes a board, executive committees, and specialist divisions with oversight from chairs and chief executives drawn from finance sectors involving figures associated with institutions like Barclays, Royal Bank of Scotland, Goldman Sachs, and Standard Chartered. Its advisory panels include representatives from the Confederation of British Industry, the Trades Union Congress, pension funds such as the Universities Superannuation Scheme, and academic contributors from universities like University of Oxford, London School of Economics, and University of Cambridge. The organisational model references frameworks from the Cabinet Office and follows corporate governance principles akin to the UK Corporate Governance Code and guidance from the Organisation for Economic Co-operation and Development.

Regulatory Activities and Enforcement

Enforcement actions have been taken against auditors employed by firms involved in scandals at companies such as Carillion, BHS, Patisserie Valerie, and Rolls-Royce. The FRC conducts investigations paralleling work undertaken by entities like the Solicitors Regulation Authority and cooperates with the Information Commissioner's Office on disclosure matters. It conducts quality assurance reviews of audit firms, issues disciplinary notices similar to the processes of the Financial Ombudsman Service, and publishes findings that influence market participants including BlackRock, Vanguard, and Legal & General. Outcomes can include fines, license restrictions, and director disqualifications adjudicated in courts like the High Court of Justice.

Standards and Guidance

The FRC issues and maintains standards covering accounting, auditing, ethics, and corporate governance, which reference global instruments such as International Financial Reporting Standards, the International Standard on Auditing series, and ethical codes promulgated by the International Ethics Standards Board for Accountants. It publishes the UK Corporate Governance Code and guidance on stewardship used by investors including Norges Bank Investment Management and CalPERS. Sector-specific guidance involves areas touching pension trustees of schemes governed by the Pensions Regulator and listed issuers subject to rules of the Financial Reporting Council's adoption of international pronouncements.

Controversies and Criticism

The FRC has faced criticism over its handling of high-profile failures, provoking calls for reform from inquiries such as the Bryan Cooke Review and parliamentary committees including the Treasury Select Committee. Critiques have drawn comparisons with regulatory overhaul proposals following events like the Global Financial Crisis and led to debates involving the Competition and Markets Authority and proposals from the Financial Reporting Council's critics advocating for a model similar to the Australian Securities and Investments Commission or the Public Company Accounting Oversight Board. Concerns have been raised by stakeholders including trade unions, investor groups like ShareAction, and professional firms represented by the Chartered Institute of Management Accountants about independence, resourcing, and the speed of enforcement.

Category:Accounting in the United Kingdom Category:Regulatory agencies of the United Kingdom