UK: FRC/ARGA - first Government remit letter published

One of the recommendations made by Sir John Kingman, in his review of the Financial Reporting Council, was that the Government should issue the FRC (and its propopsed successor: the Audit, Reporting and Governance Authority) with a remit letter, at least once during the lifetime of each Parliament, setting out "those aspects of economic policy that the regulator should have regard to when advancing its objectives and discharging its duties". It was also recommended that the FRC/ARGA should respond publicly to the remit letter. The first of these exchanges took place in March and have now been published: see here (pdf) and here (pdf).

UK: replacing the FRC with the new Audit, Reporting and Governance Authority

The Government, through the Department for Business, Energy and Industrial Strategy, has published a consultation paper in respect of the recommendations made by the Kingman Review of the Financial Reporting Council: see here (pdf).

The Government has, amongst other things, accepted the Review's recommendation that the FRC should be replaced by a new regulator to be called the Audit, Reporting and Governance Authority. The new Authority's powers, purpose and objectives will be contained in legislation and complemented by a remit letter from the Government. Ahead of the new Authority's creation through legislation, the paper explains that the FRC has voluntarily agreed to become bound by a remit letter from the Government and that such a letter has been issued.

Whilst primary legislation will also be required in respect of the new Authority's board, the Government has decided to make some changes to the current board of the FRC, including the appointment of a new chair and deputy chair; those appointed will, in due course, hold these positions with the new Authority.

The Government also states that it will work with the FRC as part of the current consultation on updating the UK Stewardship Code to ensure that the revised Code addresses the concerns raised in the Kingman Review. According to the Government, the UK Stewardship Code must be "demonstrably improved".

UK: FRC position paper for the revision of Auditing and Ethical Standards

The Financial Reporting Council has today published a position paper explaining its proposed timetable for the revision of its Auditing and Ethical Standards: see here (pdf). This follows a consultation that concluded last month (about which see here, pdf).

The FRC states that a public consultation on the revised text of the standards will start in July 2019, in order that the revised standards can apply to financial periods beginning on or after 15 December 2019. The FRC also explains how it will address some of the issues raised by the Kingman Review and the on-going Competition and Markets Authority review of the UK statutory audit market.

The position paper also explains the implications for certain independence requirements in the current standards should the UK leave the European Union without a withdrawal agreement or transition period (see further the Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2018). These implications are also covered in the letters the FRC has sent to Heads of Audit and CEOs: see, respectively, here (pdf) and here (pdf).

UK: Kingman review proposes new regulator to replace the Financial Reporting Council

The independent review of the Financial Reporting Council - aka the Kingman Review - published its final report today: see here (pdf). The principal recommendation is dramatic but not entirely unexpected: replace the FRC with a new regulator. This new regulator, provisionally called the Audit, Reporting and Governance Authority, is recommended to have the following strategic objective: "To protect the interests of users of financial information and the wider public interest by setting high standards of statutory audit, corporate reporting and corporate governance, and by holding to account the companies and professional advisers responsible for meeting those standards”.

There is, of course, much of interest in the Report. It finds, for example, that the FRC has been an effective custodian of the UK Corporate Governance Code, and the Code is still regarded as "world-leading". But a different view is taken of the UK Stewardship Code, the Report describing it as a "major and well-intentioned intervention" but one that "is not effective in practice".

Alongside the Report, a letter from Sir John Kingman to the Secretary of State for Business, Energy and Industrial Strategy has been published. This letter, available here (pdf), sets out Sir John's view on whether there is a case for fundamental change in who appoints company auditors.

UK: FRC Review Advisory Group and the powers of the FRC

The minutes of the November meeting of the Financial Reporting Council Review (known as the Kingman Review) Advisory Group were published today: see here (docx). Amongst the items of note is one concerning the response to the Group's call for evidence concerning the powers of the Financial Reporting Council. The minutes note that, with regard to the argument that the FRC ought to be able to act against all directors, "there was more unanimity on this point from respondents to the call for evidence than on any other matter". The minutes also record the approval of draft recommendations in this area by the Group.

Minutes from all of the Group's meetings are available here.

UK: BEIS Committee launches future of audit inquiry

The House of Commons Business, Energy and Industrial Strategy Committee has begun a new inquiry on the future of audit: see here. The inquiry will, to quote directly from the information provided about it, "focus on the likely impact of the CMA market study and the review of the FRC (by Sir John Kingman) in improving quality and competition in the audit market and reducing conflicts of interest". Written submissions are invited and should be received by 11 January 2019: see here.

UK: The Kingman review of the Financial Reporting Council - objectives and scope published

The terms of reference for the Kingman review of the Financial Reporting Council have been published: see here (pdf). The review has been given two objectives: to enable the FRC to "stand as a beacon for the best in governance, transparency and independence" and to ensure that it is "fit for the future". The scope of the review includes the FRC's objectives, governance and transparency; its independence (including conflicts of interest); and its impact, resources and capacity.