57% of respondents oppose increase in FRC enforcement powers, our poll finds

57% of governance professionals surveyed by ICSA: The Governance Institute and recruitment specialist The Core Partnership about the government’s plan to review the powers, operations and impact of the Financial Reporting Council (FRC) are opposed to increased powers of enforcement. Just 27% came out in favour of more power for the FRC, with the remaining 16% unsure.

Of those in favour of retaining the status quo, reasons given ranged from ‘I believe the existing FRC’s enforcement powers are adequate and would not want to see increased pressure on businesses’ to ‘I believe a lot of the success of the FRC to date has been due to the authority that comes from widespread support from, and voluntary arrangements with, its stakeholders, and not from statutory backing or enforcement powers. Any extension of the FRC’s powers should be carefully executed to ensure that this collaborative and supportive way of working is not adversely affected.’

Critics voiced opinions ranging from ‘Currently it is a little toothless and is seen as a technical body rather than an enforcer on publicly listed companies’ to those wondering if it actually uses the powers that it currently has – ‘[the FRC] seems to have been ineffective regarding Carillion, for example, but I am unsure whether it leveraged the powers that it already has.’

Asked about whether or not the FRC’s powers should be increased or decreased, responses included:

  • Focus more on ensuring the true picture is given by a company and have more powers to advise rather than just supervise and then heavy handed impact if advice not adhered to
  • Guidance should carry more weight and there should be power to fine or otherwise sanction firms and auditors whose actions result in significant damage to shareholder value. The ability to publicly censure companies is not enough
  • Its powers should be extended to cover all directors where it finds fault, not just those who are accountants or actuaries.

While the majority of respondents (61%) believe that the FRC is sufficiently independent of those it regulates, with only 11% saying otherwise, one respondent did comment that ‘Better balance and oversight from those who do not have Big Four [accounting firm] connections would not hurt.’

According to Peter Swabey, Policy and Research Director at ICSA: The Governance Institute:

“It is clear from the responses that there are concerns over the whole area of effectiveness of accounting and auditing, with many respondents recognising that there are potentially serious issues around the majority of large companies being audited by one of four audit firms. While some feel that audit firms should be limited to the number of large audits they can carry out, and that there should be more transparency about length of service in the annual report and AGM notices, others feel that the value of rotating firms is limited when there are few options in the market place that can cope with the size and geographical breadth of large and complex companies.

“Concerns were also raised that, while a risk-based approach to large audits has its benefits, this birds-eye view approach can sometimes lead to less time and focus on the subsidiaries, and missed opportunities to spot lower-level systemic process issues. Allocating more time and better experienced auditors might mean that a more meaningful audit could be achieved.”

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