Introduction
The world of business has been changing drastically over the years. The change has prompted key developments in the accounting field to ensure responsiveness to the various accounting activities such as bookkeeping. Major changes have been experienced because of globalization where more organizations are operating in different international markets. Each company has its unique regulations and business environments (Tschopp & Huefner 2015). For instance, publicly listed companies often have operations in several countries where they also have a listing. This diversity exposes them to several challenges, especially due to the various business regulations that exist in each country (Graham, Harvey, & Rajgopal 2005). Such diverse regulatory frameworks can have far-reaching consequences for a firm’s development. They may also hinder or encourage developments and investments in the various international markets. In response to the concerns that relate to operating in different and diverse markets and the respective globalization of capital markets, protracted efforts have been made to introduce standardized guidelines for accounting practices and principles. These efforts have culminated in the formation of the Financial Reporting Council (FRC) whose mandates involve the assessment of internal records of companies to report on compliance with the set accounting principles in relation to listings in the public capital markets across the world (Anstee 2010). This paper will discuss the structure, the benefits, and position of the Financial Reporting Council as a regulatory body that is mandated with promoting high-quality governance and reporting to foster investment (Gajevszky 2015).
Structure of the Financial Reporting Council
As a regulatory body, the Financial Reporting Council has an organizational structure, which helps to define the roles of all its personnel to curb redundancy so that it can deliver on its mandate. At the helm of the organization is a board of directors, which is the main decision-making organ that addresses issues of critical concern. The board not only makes important decisions that affect major activities, which relate to regulatory frameworks but also guides the implementation of strategic directions of the body (Anstee 2010). Below the board of directors are three committees, which comprise the Conduct Team, Codes and Standards Team, and the Executive Committee. Each commission has critical functions to support the operations of the body. The Codes and Standards Commission is mandated with instructing the FRC team on issues such as systems, policy framework, and benchmark-setting through its Secretarial, Inventory, and Assurance and Actuarial bodies (Anstee 2010). On the other hand, the Conduct Agency plays the position of instructing the FRC board on issues that involve FRC objectives that are aimed at ensuring first-rate commercial reporting, including supervision, analytical, and retaliatory roles, which are undertaken by the committee’s Screening Team and the Case Handling Agency. Lastly, the Executive Committee guides the panel on premeditated Issues and provides daily oversight work of the Financial Regulatory Commission.
The Conduct Committee is the most active organ. It has more mandates in the organization. Through its monitoring team and the case handling commission, the Conduct Committee is mandated with creating plans that relate to activities and the conduct of the FRC. These activities comprise supervision, corrective functions, examination, and monitoring activities that the FRC undertakes. The committee ensures that the council meets high-quality requirements of its work as dictated by its various accountability roles. As a regulatory body, the activities of FRC may often attract different risks and subsequent court battles from disgruntled organizations. Hence, the Conduct Committee needs to enlighten the council on various activities, which may attract such problems, with the view of establishing better approaches to addressing the issues (Graham, Harvey, & Rajgopal 2005). Further, in the event of a violation of the regulations and set guidelines concerning accounting processes, the conduct committee is also mandated with advising the FRC panel on the various sanctions or other measures that should be taken against firms that have violated the guidelines (Liu, Wright, & Wu 2015). During investigations that relate to the conduct of its members, the FRC appoints members who make important conclusions concerning the behavior of the particular individuals as far as their adherence or violation of the accounting standards is concerned (Wood 2012). Any infringement that may show unfair accounting practices is then reported to the committee for further discussions. Consequently, appropriate recommendations are made to the agency on the possible measures against any member who is found guilty of any violations (Graham, Harvey, & Rajgopal 2005). The committee also interacts with members to determine their interests that it can then report to the FRC for appropriate changes and adjustments to ensure that the body remains relevant.
Work and Role of the Financial Reporting Council
The significant role of the FRC is to set accounting standards for private and public sector organizations. FRC ensures that all institutions are exposed to the same accounting approaches to guarantee ease of investment and expansion in the international business environment. FRC is a membership organization whose stakeholders are drawn from various areas, including governments, professional accounting bodies, regulatory agencies, and other interested parties in the business community. Throughout the world, many countries have their respective FRC bodies, which oversee various regulatory frameworks that relate to accounting and financial reporting practices to promote fair trade (Wood 2012). For instance, in Australia, the FRC is charged with overseeing the activities of the Australian Accounting Standards Board, which is a regulatory organ that issues accounting standards in Australia. Further, the FRC is also tasked with overseeing the activities of the Australian Auditing Assurance Standards Board (AASB), which is a regulatory agency that issues auditing and assurance standards to providers of auditing and assurance services (Tanyi & Smith 2015). In the United Kingdom, the FRC also oversees the roles of various regulatory bodies in the financial and business markets. For instance, the agency supervises the activities of the Institute and Faculty of Actuaries (IFoA), which sets technical actuarial standards. Further, the body is actively involved with the International Auditing and Assurance Standards Board (IAASB) where it makes important contributions relating to the development of international standards. In the process of supervising the development of accounting values, the FRC works closely with the Accounts Standards Board by giving counsel, instructions, and any other relevant guidance to ensure that any policy or regulatory frameworks are acceptable and pertinent to the financial markets.
Overall, the FRC assures businesspeople of proper regulations and universally accepted practices in the financial markets. To guarantee agreeable regulations and frameworks, the body administers the development of financial accounting principles and values. However, since the Accounting Standards Board is an independent agency, the FRC does not influence the final decision-making concerning the accounting standards that the Accounting Standards Board establishes (Revsine et al. 2005). The primary objective of the FRC is to ensure that organizations’ financial reporting follows the stipulated regulations and guidelines to warrant fair representation of any company’s financial position so that investors can make sound decisions relating to their investment in such companies. The financial reporting of a corporation must meet four essential qualities, which include legitimacy, appropriateness, equivalence, and understandability. FRC’s mandate is to ensure that these conditions are achieved.
Another important mandate of the FRC is to ensure that it maintains the authority of guiding accounting practices in all companies. To achieve this mandate, the FRC works through the Accounting Standards Committee whose primary mandate is to define accounting principles, eliminate discrepancies and ambiguities in the monetary accounting and reporting, and ensure proper codification of financial information to meet the generally accepted practices in the accounting field. The body comes up with financial accounting reporting principles, namely the Financial Reporting Standards. Through the established standards, the FRC ensures that the company’s financial reporting is representative of the actual financial position of the company, and consequently a fair determination of whether the company’s performance is sustainable and profitable. Such information allows investors to make conscious and well-informed business decisions (Revsine et al. 2005).
Benefits of the Financial Reporting Council as a Regulatory Body
The Financial Reporting Council (FRC) has brought significant advantages into the financial markets. The body is praised for high quality actuarial and auditing work that it has managed to bring forth into the financial markets. Through its activities, the organization has provided essential insights that have been of great help to investors and stakeholders in the financial markets (Graham, Harvey, & Rajgopal 2005). The organization has also been critical in ensuring professional oversight and corporate governance. The high-quality work that FRC is accredited for has allowed investors to have confidence in its works, especially the financial information that it provides. Investors need reliable financial data to make well-informed decisions, which contribute immensely towards increased investments and benefits to the whole economy. This financial information is essential in capital markets. Quality accounting information attracts many investments. Hence, FRC has been established to ensure that all businesses adhere to the accounting guidelines so that shareholders who are interested in mergers and acquisitions can have confidence in the financial facts that they get from their preferred companies. On the downside, FRC’s focus on publicly listed companies eliminates many other problems that are linked to non-listed companies. In these non-listed companies, financial reporting is also very crucial for investors such as venture capitalists who wish to invest in them. Therefore, as FRC moves ahead, it must develop measures that will guarantee accurate and fair accounting practices for the listed and non-listed companies to promote sound decision-making for investors (Eng, Sun, & Vichitsarawong 2014).
Analysis and Evaluation
The Financial Reporting Council has carried its mandate very well so far. The body has increased transparency and accountability in reporting. Such accurate reporting that adheres to the stipulated guidelines is a significant benefit to organizations since they can accrue the benefits of attracting investors to expand their businesses. On the other side, the FRC has also carried its mandate of disciplining organizations that are found guilty of breaching the set guidelines. For instance, in 2013, Deloitte Company was fined a record £14 million for its role in the collapse of the MG Rover, the British Carmaker (Kortekaas & Saigol 2013). The case was attributed to faulty financial reporting.
The FRC has been at the forefront in pushing for the adoption of acceptable financial reporting practices where it provides important counsel on issues that it considers being within its mandate in the financial markets. Consequently, the body has helped many companies to adopt good financial reporting practices that are supported by acceptable accounting approaches to financial reporting (Graham, Harvey, & Rajgopal 2005). The body’s mandate has also been strengthened to ensure that it can apply sanctions when needed so that companies can desist from any violations of the regulations and practices as demanded by the FRC. With a team of highly qualified individuals, the FRC has managed to deliver its mandate to the best of its abilities. Different stakeholders and organizations in the financial markets have so far praised its benefits.
Conclusion
An accurate, understandable, and reliable financial reporting process is of great significance in any financial market since it allows sound decision-making on investments. Any faulty financial reporting can lead to defective investment decisions, which can cause significant losses to investors. Therefore, the FRC is a major regulatory body, which has allowed investors to make sound decisions relating to investing in publicly traded organizations. The organ is a culmination of the efforts towards universally acceptable financial reporting guidelines, which allow agencies and investors to invest in diverse markets across the world. Any violations of the FRC’s regulations and directives attract penalties, which act as a deterrence mechanism for any future mistakes and misrepresentation of information on financial reporting by organizations. Concisely, the FRC has been central to the financial and capital markets since it has allowed the implementation of regulations and guidelines that are acceptable to all business stakeholders.
References
Anstee, N 2010, The UK approach to Corporate Governance, Financial Reporting Council, London.
Eng, L, Sun, L & Vichitsarawong, T 2014, ‘Are International Financial Reporting Standards–Based and U.S. GAAP–Based Accounting Amounts Comparable? Evidence from U.S. ADRs’, Journal of Accounting, Auditing & Finance, vol. 29, no. 2, pp. 163-187.
Gajevszky, A 2015, ‘Assessing Financial Reporting Quality: Evidence from Romania’, Audit Financier, vol. 13, no. 121, pp. 69-80.
Graham, J, Harvey, C & Rajgopal, S 2005, ‘The economic implications of corporate financial reporting’, Journal of Accounting and Economics, vol. 40, no. 1, pp. 3-73.
Kortekaas, V & Saigol, L 2013, Deloitte fines record £14M over MG Rover Case, Web.
Liu, X, Wright, A & Wu, Y 2015, ‘Managers’ Unethical Fraudulent Financial Reporting: The Effect of Control Strength and Control Framing’, Journal of Business Ethics, vol. 129, no. 2, pp. 295-310.
Revsine, L, Collins, D, Johnson, B & Mittelstaedt, F 2005, Financial Reporting and Analysis, Pearson/Prentice Hall, New York, NY.
Tanyi, P & Smith, D 2015, ‘Busyness, Expertise, and Financial Reporting Quality of Audit Committee Chairs and Financial Experts’, Auditing: A Journal of Practice & Theory, vol. 34, no. 2, pp. 59-89.
Tschopp, D & Huefner, R 2015, ‘Comparing the Evolution of CSR Reporting to that of Financial Reporting’, Journal of Business Ethics, vol. 127, no. 3, pp. 565-577.
Wood, F 2012, Business Accounting, Pearson, New York, NY.