FRC competence review leaves watchdog on tenterhooks

The Financial Reporting Council (FRC), watchdog of the UK’s accounting industry, has come under attack after a review which may lead to its demise.

Shareholders, fund managers, and accountants alike have responded negatively to a recent review of the FRC.

The government’s business department conducted the review of the watchdog’s competence earlier in 2018 following a series of scandals that have whipped up uncertainty around it, namely the collapse of Carillion.

John Kingman, Legal and General chairman and former civil servant, is leading the review. The Financial Times conducted analysis into 12 responses to the review and found clear frustration among organisations with regards to the FRC’s actions.

Many organisations wanted either a significant restructuring or a complete abolition of the watchdog.

Two associations which represent individual shareholders put in a joint submission and said: “In practically every financial scandal or crisis, the FRC seems to have taken far too long to decide [on an outcome] and too often has concluded that nothing has gone seriously wrong.”

Key suggestions were that the FRC is less reliant on alumni from Big Four firms and that it hires representatives from employers’ organisations like the Trades Union Congress.

Some responses were harsher still. The Association of Accounting Technicians (AAT) said the FRC had “presided over a catalogue of audit failure that has brought its own existence into question”.

The Investment Association, representative of fund managers collectively, said: “Culturally, the organisation is seen as being reactive, too slow when undertaking investigative or enforcement action, fails to take investor feedback into account, and narrowly focused on processes rather than outcomes with staff who have a homogenous skillset.”

Other respondents think a new “super regulator” should be introduced which merges parts of the current FRC together with the Companies House and Insolvency Service.

There was also the suggestion that the FRC’s successor is given greater resources and the ability to hold all directors to account. At the moment they only have the power to punish directors who are qualified accountants.

An FRC spokesman said the regulator looks forward “to seeing Sir John’s final recommendations when he publishes them later this year”.