THE BODY responsible for promoting high quality corporate governance has been criticised during an ICAEW Council meeting for failing to adequately represent the profession for which it is responsible.
During an open meeting at Chartered Accountants Hall, council members raised concerns about the FRC’s ability to give “due focus and attention” to companies operating at the smaller end of the market and the lack of representatives from the SME sector on the reporting watchdog’s board and councils.
The FRC’s board, plus accounting and audit councils, are “composed entirely of people that have listed company background or are retired civil servants” long-standing council member Peter Hollis said at the meeting. “There is no representation from the SME sector.”
Only one member of the regulator’s main board currently holds a role outside of the Big Four accounting firms, civil service, and large-listed financial service firms of which the board is composed. Out of the 29 members sitting of the FRC’s audit and accounting councils, which advise the main board, only one currently sits on the board of an AIM-quoted company.
“The problem goes back donkeys’ years,” Hollis told Accountancy Age. “If the FRC make rules for everybody then it need more representation from other sectors.”
Although the FRC’s corporate governance code is applicable to companies with a premium listing of equity shares much of its work is aimed at SMEs – such as FRS 102 and new proposals for small companies and micro entities, while the FRC is currently consulting accounting standards for small entities in order to implement the EU accounting directive.
However, the regulator “appears to be increasingly focusing on checking that public interest entities and their auditors properly comply with all current regulation” and needs to “ensure that the work it undertakes at the smaller end of the market…is also given due focus and consideration by those with appropriate knowledge of the sector”, council member Julia Penny said at the meeting.
Sir Win Bischoff [pictured], the FRC’s new chairman who addressed the council meeting, said the regulator has taken steps to hire people with “familiarity” with smaller companies and understand the “concerns of smaller companies”.
“We are engaged on that,” he said, and added that the FRC is “aware” of the lack of SME representation on its board. The FRC is currently conducting an annual review of board competencies – the first since Bischoff’s appointment – and will looking at whether it has got the right kind of representation at management and board level.
“It may take some time” to conduct a “gap analysis of our knowledge base,” Bischoff said.