15 February 2021: The Financial Reporting Council’s draft strategy, plan and budget for 2021/22 outlines its direction of travel as the regulator transforms into ARGA. But this comes with increased costs for funders.

The Financial Reporting Council has published its 2021/22 strategy, plan and budget for consultation, outlining the transformation plans to transition into the Audit, Reporting and Governance Authority (ARGA).

The plan outlines a budget increase of £6.8m, with £1.9m put into audit firm supervision, a new activity for the regulator. Other significant increases include an extra £1m for enforcement and £800,000 each for corporate reporting review and stakeholder engagement. Audit and assurance standards is the only category in which spending will fall in 2021/22, by £400,000. A further £600,000 will go into the UK Endorsement Board.

Much of this additional budget will go into staffing costs. The document outlines an increase in headcount by 56 in 2021 and 59 in 2022. The plan does not include detail of how operations and organisational structure will change as a result of these changes, however.

Vernon Soare, ICAEW’s Chief Operating Officer, says that the Institute supports the transition from FRC to ARGA and that the new regulator will require an increased staff and cost base to fulfil its responsibilities. “However,” he adds, “a 15% cost increase in one year is a significant rise, which will come as a surprise to funders.”

The proportion of the FRC’s costs funded by the UK accountancy and audit profession has gone up for 2021/22 by 5% to 57% compared with the previous year. Much of the profession’s cost increases will be passed onto UK business through fees. The corporate sector’s contribution to FRC costs remains static at around 36%.

“In the early days of the FRC, the UK government contributed one-third of the FRC’s costs, recognising that FRC regulation is a public interest activity,” says Soare. “This has been nil for many subsequent years. Contrast the funding of the PCAOB in the USA, with a $260m budget with less than 5% contributed by the US profession.”

FRC CEO, Sir Jon Thompson said: “In this plan and budget, we have assumed a further two-year transition period to the creation of ARGA in 2023. We will also be reviewing and implementing a new funding model, ahead of it being put on a statutory footing. We look forward to engaging with stakeholders on the detail of ARGA’s funding proposals in due course.”

The 2021/22 Strategy and Plan & Budget consultation will run until Friday, 12th March. Respondents should submit their comments to FRC.Plan.Budget@frc.org.uk by that date.