FRC to continue to monitor audit quality during transition
High quality audit, corporate governance and financial reporting are vital to the success and continued growth of our economy, said Secretary of State for Business Greg Clark.
In an open letter addressed to the outgoing head of the audit regulator, CEO Stephen Haddrill, Mr Clark said that the FRC should continue to set auditing and ethical standards and to monitor and enforce audit quality until it is replaced by a new regulatory body, the Auditing, Reporting and Governance Authority (ARGA).
The letter follows the recommendations in Sir John Kingman’s independent review of the FRC, which will see the disbandment of the current audit regulatory body and the creation of new independent statutory regulator.
Mr Clark stated that while the government has accepted Sir John's recommendations, it is seeking views on several aspects of its operation and remit.
"It will require a programme of transformation for the FRC to transition into the new statutory regulator. While some of the changes will require legislation, many aspects of transformation can and should be undertaken or initiated in advance of legislation," said Mr Clark.
He explained that trust in the sector has been damaged by recent failures.
"Inspection and enforcement should therefore remain clear priorities for the FRC. Following recent evidence given to the BEIS Select Committee by audit firms, I would encourage the FRC to take steps to ensure that audit firms are correctly applying audit standards in relation to fraud," Mr Clark noted.
In relation to the FRC's existing areas of work, Mr Clark said that he expects the FRC to continue to discharge its existing statutory and non-statutory functions, which together serve to promote transparency and integrity in business.
The FRC will continue to monitor and take action to promote the quality of corporate reporting, and to operate independent enforcement arrangements for accountants and actuaries.
"Where these matters overlap with recommendations of the FRC review, the CMA's study, and Sir Donald Brydon's review of audit quality and effectiveness, my expectation is that the FRC will work closely with the review teams and with my department in order to consider the timing and ensure the coherence of any action taken," Mr Clark concluded.