Financing plan
4 Aug 08
The FRC has revealed how it hopes to follow the Government's call fr it to be funded by participants
The FRC has published proposals for a new basis for funding its responsibilities for accounting, auditing and corporate governance. The need for new funding arrangements follows the Government’s announcement in February 2008 that these costs should in future be funded largely by market participants. At present, the Government pays roughly a third of these costs, about £3.5m a year.
The FRC is requesting comments on its proposals by 5 September. It will consult on detailed proposals for its future funding arrangements in the autumn.
The FRC believes that the principle on which its funding should be based is that its costs should be met by the major groups of market participants which are subject to, or have regard to, the regulatory requirements which it sets, influences, monitors or enforces.
The FRC intends to replace the government grant through a combination of extending the groups of market participants which contribute to its costs and increasing the contribution from existing contributors. Large private companies and public sector organisations are subject to, or have regard to, its regulatory requirements but do not contribute to its costs. The FRC believes they should be asked to do so.
The FRC has estimated the size of the contribution from these two groups if they were subject to its levy on publicly traded companies, basing the contributions from private companies on turnover, and from public sector organisations on expenditure. It has applied discounts to both groups to reflect the fact that not all its regulatory activities apply to them.
For private sector companies, it proposes a 50 per cent discount; for public sector organisations, 75 per cent – the FRC is not responsible for setting public sector accounting and audit standards, but in setting these standards, the public sector has regard to FRC standards.
On the basis of its 2008/09 budget of £11.9m for core activities in relation to accounting, auditing and corporate governance, the FRC estimates that private companies should contribute 11 per cent of its funding (£1.3m) and public sector organisations 5 per cent (£500,000). The shares of the two existing groups would rise to 42 per cent each.
The FRC is consulting on these principles and on its preliminary plans to implement them. In the light of the responses, it will carry out further analysis and refine the calculations before consulting on its final proposals.
The FRC has powers to put its funding on a statutory basis, but intends to continue to raise its funds on a non-statutory basis based on the widespread support in the business, investor and professional communities for its work.
FRC chief executive, Paul Boyle, said: “The Government has asked us to consult market participants on a new basis for funding our core responsibilities in relation to accounting, auditing and corporate governance, following its announcement in February 2008 that it will withdraw its annual grant to the FRC.
“We believe that our proposals will provide a fair, cost-effective and stable basis for us to raise the funds we require. We will consult further in autumn 2008.”