The Pensions & Investment Research Consultants (PIRC) has launched an unprecedented attack on the United Kingdom’s audit watchdog the Financial Reporting Council (FRC).

In written evidence to the UK Parliament, PIRC’s head of governance and financial analysis, Tim Bush, called for the FRC to be broken up.

“We believe the FRC in its current form is unsupportable,” he wrote.

The submission urges legislators to split the FRC’s rule-making functions from its enforcement role.

In support of its call, PIRC argues that the FRC has misunderstood or ignored the duty under s172 of the Companies Act 2006 for companies to publish a Strategic Report.

“There is clear evidence with Section 172 and Section 414, and Section 393 and Part 23 of the Companies Act 2006 that the FRC is not adhering to the law.”

The corporate governance advisors then go on to quote evidence given to the UK Parliament’s Business Energy and Industrial Strategy Committee by FRC chief Stephen Haddrill.

“Frankly, we have not given sufficient thought or appreciation to the company’s wider responsibilities beyond the shareholder,” Mr Haddrill said during an oral evidence sesssion. 

He continued: “We do need to focus on that stakeholder issue. Section 172 has been there, but it has not borne on thinking in companies and it needs to.”

The FRC told IPE that it strongly rejects the PIRC claims.

In a rebuttal letter addressed to PIRC’s managing director Alan MacDougall, the FRC’s executive director, Paul George, wrote:

“There are no specific legal requirements to report separately on the issues to which directors must have regard under s172 and how they have done so, which has led the FRC to recommend that a change in the law is required.

“[W]e will be considering possible improvements to the Corporate Governance Code and the FRC’s Guidance on the Strategic Report but there may be some areas where legislative changes are required.”

This latest spat is not the first time that the FRC has found itself under fire from long-term investor interests.

Meanwhile, the under-fire watchdog has revealed a four-percent increase in its overall funding requirement to fund a major ramping-up of its activities.

The FRC said it wants to spread the cost through an increase of 2.5-percent in levies on professional bodies and a 5-percent increase in its preparer levy.

According to a draft plan and budget posted on its website, the FRC said it will “undertake thematic reviews of certain aspects of companies’ corporate reports and audits, where it believes there is scope for improvement and particular shareholder interest” during the coming year.

The focus of the FRC’s review work will fall on significant accounting judgments and sources of estimation uncertainty, pensions disclosures and Alternative Performance Measures.

“The FRC will write to a number of companies prior to their year-end, informing them that it will review disclosures in their next published reports, specifying the topic under review,” the FRC said.

Interested parties have until 17 February 2017 to comment on the proposals.

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