European Audit Committee Leadership Network, May 2014
On 2 April 2014, as part of the European Audit Committee Leadership Network (EACLN) meeting in London, members met with Stephen Haddrill, chief executive officer of the Financial Reporting Council (FRC), the UK regulatory body responsible for corporate governance and reporting.
Mr Haddrill and the EACLN members discussed the characteristics of the FRC as an organization and its activities in areas of specific interest to audit committees:
The FRC and its role
Mr Haddrill described an organization of 120 people that uses both mandatory regulations and the “comply-or-explain” approach to promote high-quality corporate governance and reporting in the United Kingdom. The FRC is not a statutory regulator, but an independent organization with authority delegated to it by the government through the secretary of state for the Department of Business, Innovation and Skills. In response to members’ questions about how the FRC addresses resource challenges, Mr Haddrill explained that the FRC collaborates with a number of other organizations to achieve its goals.
Influence in Europe and beyond
The FRC works closely with other national organizations and international bodies, and its impact extends well beyond the United Kingdom, a legacy of the influential 1992 Cadbury Report on corporate governance. Mr Haddrill pointed to the acceptance of the comply-or-explain approach by the European Union (EU) as an example. He also noted that the FRC tries to persuade other national standards setters to become more engaged in EU legislation.
Efforts for less cluttered, more effective reporting
The FRC’s response to the financial crisis has included activity in several areas of interest to audit committees. It is trying to help companies reduce boilerplate and clutter, in part by providing guidance on the new “strategic report” regulations put out by the Department for Business, Innovation and Skills. It is also working on a proposal for improving risk reporting that includes provisions for both boards and auditors, and it has sought to improve audit committee reporting, an effort which EACLN members in the meeting generally supported with the caveat that the board as a whole, and not the audit committee alone, should ultimately be responsible for the report.