02/02/2017

The FRC has an ambitious agenda for 2017

BY Eleanor Leach

The Financial Reporting Council (FRC) held an Open Meeting on 1 February 2017 to discuss their priorities for 2017/18, as well as hearing opinions from a number of panelists and other attendees, to determine the effectiveness of the FRC’s plan.

The discussion was focused on the seven priorities the FRC has outlined in the Draft Plan & Budget and Levy Proposal. These priorities include:

  • Promoting and restoring trust in business and effective investor stewardship
  • Addressing the challenges and opportunities that Brexit will bring
  • Increasing speed and effectiveness whilst ensuring high quality in audit and
  • Continuing to promote clear and concise reporting.

The FRC explained that they will be consulting on both revisions to the Corporate Governance Code and the Guidance on Board Effectiveness during Summer 2017. In line with the Government’s call for Corporate Governance reforms, the FRC will play a major role in addressing these changes whilst seeking to maintain international trust in response to Brexit and triggering of Article 50 of the Lisbon Treaty.

The panel discussion provided insights from a broad cross-section of professionals on the FRC’s plan for 2017, with speakers from the Investment Association, Confederation of British Industry, the Institute Faculty of Actuaries and the London Business School.  Some of the key points were:

  • Governance of public companies in the UK is generally well regarded within the UK and internationally particularly in responding to changing demands. However, increased regulation may not be the answer for further improvements in governance. It is likely that the influence of the FRC in raising issues and stimulating debate will be sufficient to bring about change. The ‘comply or explain’ principle of the Code works well, better than hard rules, and the FRC should use this to their advantage.
  • The extent to which private companies should be subjected to higher standards of governance if they are making a big enough impact with wider stakeholders in the markets that they operate in.
  • Companies need to be doing more to provide investors with the information they need regarding remuneration reporting, board activities, engagement and culture, whilst investors need to be more active with enforcing stewardship.
  • At present, corporate reporting is driven by a focus on tangible assets and there needs to be more consideration given to intangibles, especially given the value of brands. Investors do not see any reporting on the role of intangibles in creating value when using the annual report as their key source of information.

The FRC has an ambitious agenda planned for this year. It is likely 2017 will be a year of change for the FRC, as they seek to update the relevant guidance to improve trust and promote confidence in business.

Our view is that it is important for the FRC to encourage the marketplace to continue to reform reporting but it is also important to have the right balance of regulations to ensure companies and their boards are clear about what is expected of them.