FRC holds code in good hands
By Peter Williams
The Financial Reporting Council is one of those peculiarly British institutions. It was formed in response to the crisis in confidence in British financial reporting in the 1990s and has since worked quietly in the background letting its subsidiary bodies, notably the Accounting Standards Board and to a lesser extent the Financial Reporting Review Panel, keep company reporting on the straight and narrow.
Its success can be seen in its impending expansion of responsibilities.
The gathering furore from business over the proposed changes to the combined code on corporate governance has probably taken the FRC by surprise.
Although there was broad agreement on much of the thrust of both Derek Higgs’ and Sir Robert Smith’s report, the business community expressed their opinion that there were serious problems with some of the combined code provisions, which deserved full consultation and review.
The FRC’s reaction to the complaints has shown what a careful regulator it is. It has taken on board the criticism and agreed to look again at how the code should work.
This underlines the strength of its flexible approach, which is shown in the composition of the working party that will decide how to take the code forward. Some of those criticising the report are now in charge of finding a better solution and will work alongside the report’s original authors.
The code would not be handled with such sense and sensibility anywhere else. Certainly not by a bureaucracy-bound government department and neither by the Financial Services Authority, whose main remit is maintaining the integrity of quoted markets through regulating the City.
At the moment, all the criticism for the draft code is coming from one quarter, Britain’s senior businessmen. However, the FRC knows that its final code has to satisfy all corporate governance stakeholders, and that the integrity of the Higgs’ report must be maintained to keep the UK at the forefront of corporate governance. There is no better place for such a delicate balancing act to be achieved. l
- Peter Williams is a freelance journalist.
Tricky balancing act for Council
By Gavin Hinks
After last week there is much focus on the work of the Financial Reporting Council as it not only wrestles with the combined code on corporate governance, but also integrates parts of the old Accountancy Foundation to form a new regulator for accountants.
So far it has been the code and the efforts to include parts of the Higgs report on non-executive directors that have grabbed the headlines.
But the FRC is also working to bring accountancy regulation under one roof by taking on the responsibilities of the Accountancy Foundation.
This is no easy task and care will need to be taken. But there should, perhaps, be no mistake. This is no fundamental reform for accountancy.
This is a timely and overdue tidying of how accountants are regulated.
It curtails the proliferation of bodies and, in theory, should make it easier for all stakeholders to see who is accountable for what.
But in undertaking this reform, there will be things that observers should watch closely. Foremost is that the five bodies overseen by the FRC do not duplicate work. This will be a tricky one when writing the remits for the Professional Oversight Board, the Investigation and Discipline Board and the Auditing Practices Board, which gets a new responsibility of looking at integrity, independence and objectivity issues.
Duplication is a difficult issue because it raises the risk of murky areas where no-one knows just who is in charge of what. That in turn has implications for accountability. And the whole point of the FRC now is clear accountability.
But Sir Bryan Nicholson, chairman of the FRC, is an intelligent man and hardly needs to be warned about the risks. There are those though who will be waiting for the FRC to fail in some – especially given that the reforms have the official seal of approval from the DTI.
A hint of failure at the FRC could well rebound on the politicians who made the decision to change things.
- Gavin Hinks is news editor of Accountancy Age.
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