2015 marks the FRC’s 25th anniversary. Originally established in 1990 to be responsible for setting and monitoring UK accounting standards, the organisation has evolved significantly since then. We have taken on an increasing range of responsibilities, which now also cover corporate governance and investor stewardship, audit and assurance, actuarial work and oversight of the accounting and actuarial professions, and have grown as a result. However, we are and wish to remain a relatively small organisation, even though we will expand further if we are asked to become a competent authority for the regulation of the audit profession under the EU Audit Regulation and Directive.
The fact that successive governments and the market have asked the FRC to take on additional responsibilities suggests that we have a track record of exercising them effectively. But no matter how good our past record has been, we cannot take our future success for granted.
When I succeeded Baroness Hogg as Chairman in May 2014 after her four successful years in the role, I was keen to make my own assessment of whether we are well placed to deal with the challenges ahead. We set in hand the necessary work to develop our next three year strategy, for 2016/19, including the way we raise our funds and develop our people. We are evaluating the impact of the reforms to our structure and statutory powers in 2012. And we have instituted a review of the effectiveness of our monitoring of the quality of corporate reporting and auditing.
I have personally spoken to many of those we regulate, those who benefit from our activities, and those whom we seek to work with and influence. We have also undertaken a stakeholder survey to understand better how we are viewed.
Overall the feedback has been positive. The FRC is seen as being close to the markets, consultative and willing to listen, with greater coherence and focus to our structure and statutory powers than before the 2012 reforms. We are also seen as influential by those organisations we deal with in the EU and internationally.
Of course, there is room for improvement. In common with other regulators, we have begun to see signs of regulatory fatigue amongst those with whom we deal. We also heard that we need to do more to understand the views of, and impact of our work on, investors.
During the year we undertook an internal review of the effectiveness of our board, committees and advisory councils, and assessed progress following the independent evaluation carried out in 2013/14. The results of the review are reported on page 37.
In addition, the Nominations Committee has reviewed the FRC’s non-executive succession planning across the full governance structure. We concluded that the skills and stakeholder representation were appropriate but identified the need to appoint to the Board individuals with actuarial experience and experience in the non-listed sector. I am pleased that John Coomber and Ray King will join the Board shortly. Ray will now chair the Audit and Assurance Council and both will join the Codes & Standards Committee.
While we will not underestimate the challenges facing us, I believe we are in a good position to cope with them.
In developing our three-year strategy for 2016/19 we must not lose sight of our primary mission to foster investment and must keep the needs of investors at the front of our mind. We need to remain focused on our priorities, measuring success by the impact we make, not by our level of activity. We need to maximize that impact by continuing to work collaboratively with fellow regulators and others such as the professional bodies. We need to avoid imposing unnecessary burdens on those we regulate, taking a non-regulatory approach wherever possible, being particularly mindful of any adverse impact on small, growing companies.
We will continue to improve how we communicate with all of our stakeholders, including a number of initiatives focused on the investor community. We are particularly keen to engage closely with Government and Parliament to ensure there is good understanding of our work and its effectiveness. And we need to make sure we have the right structures, people and resources to carry out our responsibilities effectively and efficiently.
Our approach to governance has enabled us to focus on key strategic issues, with our Board, Committees and Councils taking on much of the ‘heavy lifting’ on matters that require detailed scrutiny. This has enabled us to make further progress in delivering the priorities we set for our 2013/16 strategy – including updating the UK Corporate Governance Code to promote a clearer focus on risk, internal control and the assessment and reporting of companies’ longer-term viability.
I should like to take this opportunity to thank the many Committee and Council members who support the work of the Board and also to thank Stephen Haddrill and the executive team for their continuing support and commitment.
In January 2015 we announced that Jim Sutcliffe had stood down from the Board and from his Chairmanship of the Codes & Standards Committee, having formerly served as Chairman of the Board for Actuarial Standards. His contribution in these capacities has been highly valued. John Stewart stood down from the Board and the Codes & Standards Committee from July. I would like to take this opportunity to thank both Jim and John for their advice and commitment to the work of the FRC.
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