1.0 Structure, work and role of the Financial Reporting Council (FRC)
1.1 Structure of FRC
The Financial Reporting Council based in the UK is the independent regulator for promoting corporate governance. There are three governance bodies which supports and run FRC, which are (Nominations Committee, Audit Committee and Remuneration Committee) and other two business committees (Conduct Committee Codes & Standards Committee and). Three councils which advise on Audit & Assurance, Corporate Reporting and Actuarial matters supports “The Codes & Standards Committee.” The Corporate Review Committee, Audit Quality Review Committee and the Case Management Committee support the Conduct Committee and have specific responsibilities set by FRC’s which relates to monitoring, reviewing and disciplinary procedures.
1.2 Work of FRC
The main objective of this organisation is to promote confidence in corporate reporting and governance. For healthy business function, we see the confidence in corporate reporting and governance, thus making it significant to contribute in the overall economy and also in international markets to achieve sustainable growth.
We have identified six Strategic Outcomes which contribute to our overall aim:
• Outcome One – Corporate governance in UK companies with a prime vision of listing in the UK are leading in a way to achieve sustainable growth in business success and the risk management.
• Outcome Two – Corporate reporting contains information which is relevant, reliable, understandable and comparable, and are useful for decision‐making, including stewardship decisions.
• Outcome Three – Users of audit reports are placed a high degree of reliance and trust on the audit opinion, including a true and fair view of all financial statements.
• Outcome Four – Actuarial practice users are placed on a high degree of reliance on its relevance, transparency of assumptions and making efficient decision-making, comprehensibility, integrity and completeness.
• Outcome Five – The professionalism criteria of accountants, and actuaries.
Clients and employers of professionally qualified accountants and actuaries from the accountancy and actuarial firms can trust on them to act with integrity, objectivity, technical standards, competence, and professional behaviour and having concerned to the public interest.
• Outcome Six ‐ FRC effectiveness – the FRC is an effective, efficient, accountable, transparent and independent regulator to promote high-quality governance, which is actively involved helping to progress the UK, and to influence EU and global to adopt its workings relates to corporate reporting and governance.
IFRS is committed to the better Regulation Commission principles; proportionality, targeting, consistency, transparency and accountability. IFRS aim to:
• It works on the basis that is well-defined and well‐informed. The market can be the best regulator but in accordance to some of IFRS responsibilities, the IFRS has given significant powers and they do not hesitate to practice them where necessary.
• It targets to use its powers, compliance, risk and proportionate approach, making and allowing effective use of Regulatory framework and having particular regard to the action of regulation on small enterprises.
• It gives importance to principles and transparency in standard‐setting and rule‐making and seeks to confirm and ensure, it’s appropriateness to do so, that IFRS is consistent with international standards.
• Be consultative ‐ It involves preparers, actuaries, auditors, users of corporate financial reporting, and other regulatory organisations in decision‐making and authorising adequate time for consultation, without compromising independence or confidentiality.
• FRC recognise the importance of professional ethics and judgement in the way in which standards and principles are applied and enforced.
• Where we discharge a judicial or quasi‐judicial function, do so in accordance with formal powers and the rules of natural justice.
• IFRS objective is transparency, accountability and efficiency at work, which ensure that information about work is presented in a timely manner which should be easy understandable for stakeholders and the public. IFRS believes that they have the prime responsibility for achieving high standards for reporting and governance for companies and pension funds, which are supported by their professional advisers and encouraged by the investor’s community. An ethical and adequate approach for business is to achieve these standards and follow it with integrity. FRC believes that no system of regulation can eliminate the prospects of corporate reporting or governance failures; it is dthought that it is impossible to achieve failure and any efforts to achieve would put an end monetary wealth rather than facilitate its creation. However, it adheres the actions of those which are responsible for corporate reporting and governance.
1.3 Role of FRC
The role of the FRC Board,
The Board will:
• Determining strategic approach and priorities.
• Setting the budget, protecting the funding and monitor expenditure on projects.
• Making appointments to the operating bodies and senior management and monitor their effectiveness.
• Considering all members of the Board other than the Chair person and the Deputy Chair person; establish good relations with Government.
• Supervise the delivery by each operating body of its functions, through regular reports from the Operating Body chairs.
• Supervise the overall performance of the Executives.
• Approve any necessary structural changes if required by FRC.
• Ensure that the FRC and its Operating Bodies achieve high standards of accountability and transparency.
• Undertake evaluation of risks and supervise the risk mitigation plan.
• Conduct annual assessment of its performance, including its committees and reviewing of the schedule of matters reserved to the Board.
The role of the Operating Bodies,
The Operating Bodies will:
• They are responsible for making regulatory decisions related to Regulatory Strategy and Plan and Budget.
• They are responsible for analysing emerging risks or other related matters which could affect those aspects of confidence in corporate reporting and governance which are risky and keeps the power of damaging within their remits.
• Making appointments with working groups and committees, with Chair-person of the FRC related to consultation, when appropriate.
• Undertake yearly assessments of their performance and their sub‐committees. Monetary Funding Details on the FRC's approach to managing its costs and the way in which it is funded are contained in the Financial Management and Reporting Framework, which is set out in Annexe D.
Accountability – the principal ways in which the FRC is accountable are written down below. Consulting on work plans:
• They publish and invite Annual Plan & Budget.
• They prepare and publish regulatory impact assessments on major proposals. Reporting on performance.
• They publish up to date information about work, including summary minutes of meetings of the FRC Ltd Board and our Operating Bodies, subject to issues of necessary confidentiality.
• As part of an annual planning process, they assess and publish reports on performance, identify the progress which is making in achieving our Strategic Outcomes, and demonstrate effectiveness and efficiency in the way they use resources. Making themselves open to scrutiny.
• They make themselves available for scrutiny by external auditors, by Parliament, by stakeholders, and by the public (through an Annual Open Meeting).
2.0 Benefits of the FRC as a part of the regulatory framework
What are the advantages of converting to IFRS?
By adopting IFRS, a business can present and compare its financial statements on the same standards as its foreign competitors, making it comparisons easier. Apart from it, companies with subsidiaries in other countries that require a permit, IFRS may be able to use one accounting language company-wide. Companies are required to convert to IFRS if they are a subsidiary of a foreign company that uses IFRS, or if they are directly involved with an at least foreign investor that use IFRS. Companies may also gain from using IFRS if they wish to raise capital abroad.
As the corporate world has become extremely attentive, with strict in its trade and financial rules, a lot of countries have already moved from the Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS). Due to its principle-based frame-work which could lead to extensive disclosures in the financial statements, and of which standard accounting rules define what information must be disclosed in financial statements and how transactions must be reported. While this unitary set of standards has addressed and solved many issues, it has also created other problems. Here are the advantages and disadvantages of adopting IFRS:
List of Benefits of Adopting IFRS
1. It allows for greater comparability.
Businesses using similar standards preparing financial statements can be more accurately compare and identify with each other. This is very useful for businesses when comparing financial statements which are issued from other different countries, as they may have different methodologies and rules in preparing these documents. This greater comparability has aided investors to better identify where their investments should go.
2. It is beneficial to new and small business investors.
The IFRS can help new and small businesses by making reporting standards to have better quality and making it user-friendly, putting these businesses in a similar position with professional investors, which was not appropriate under previous standards. This also involves reducing the risk for these investors when they trade, as the professionals will not be able to take benefit because the nature of financial statements will just be simple to be understood by all.
3. It creates more potential outcomes.
Considering and following a philosophy which is mainly based on principles, instead of rules. This set of standards will have the goal of arriving at a reasonable valuation with various ways to accomplish tasks. This would give valuable businesses the freedom to adopt IFRS to enforce standards according to their specific needs, which will result in clarity of financial statements that are more easily understandable and useful.
List of Disadvantages of Adopting IFRS:
1. It is very costly.
Small or Large businesses are slightly affected if a country adopts IFRS. Small companies may not have sufficient monetary funds to apply the changes, as it would require them to train their staff and hire professionals or consultants with high remuneration. This would make survival of small companies hard than the large corporations.
2. Strict Standards.
With no IFRS standards, companies can use their individual methods to make financial statements as it can be altered which can be drastic for businesses. While the IFRS standards are principle-based standards with more transparency and competence. This means that all companies should follow with same standards and procedures to make financial statements.
3. Not Globally accepted
It is to be believe that the developed countries of the world e.g. USA, Japan, Russia and other countries like India, Malaysia, Colombia have not adopted IFRS. It shows that they might be facing some difficulty in adopting IFRS because they would require preparing financial statement using a set of standards and principles that are accepted in these countries.
3.0 Conclusion
The advantages are worth repeating: – they encourage transparency and easy comparison in transactions crossing borders and jurisdictions – translation and reconciliation costs are removed – all companies are better able to attract capital from a larger pool of investors, driving down costs of capital – opportunities for regulatory arbitrage are eliminated.