The Financial Reporting Council (FRC) has announced its areas of supervisory focus for 2023/24, including priority sectors for corporate reporting reviews and audit quality inspections.

Under the new focus, FRC’s Supervision Division will supplement its routine reviews of corporate reporting and audits with a number of thematic reviews, which will look to identify scope for improvement, as well as examples of better practice.

The FRC’s Audit Quality Review team, meanwhile, will pay “particular attention” in its audit quality inspections to areas including going concern, fraud risks, and climate-related risks, as well as the application of the revised Auditing Standard on risk identification and assessment.

In particular, the FRC revealed that the Corporate Reporting Review team will look to conduct four thematic reviews, focusing on insurance contracts, large private companies, Task Force on Climate-related financial Disclosures (TCFD), and fair value measurement.

The FRC explained that, when identifying audit thematic reviews, it had considered carefully how topic align with and complement its monitoring of the imminently effective new quality standard for firms.

It additionally detailed that it had selected certain topics to cover in the inspection cycle such as sampling, hot reviews, network resources and service providers, and root cause analysis.

Priority sectors were also highlighted in the announcement, with the FRC raising concerns that sectors, such as travel, hospitality and leisure, retail and personal goods, and construction, are at higher risk, for corporate reporting and audit, by virtue of economic or other pressures.

The FRC explained that, given the difficult economic conditions that are currently being experienced, it recognised that many companies, in many different sectors, are currently under particular commercial and financial pressure.

It will therefore be especially careful over the coming year in monitoring where these pressures are being felt most acutely, and tailor its selection of company reports for review and audits for inspection accordingly.

The new supervisory focus was published alongside the FRC's three-year plan for 2023-26, which set out its priorities for the next three years and the resources it will need to achieve them.

The plan incorporates a "balanced yet assertive" approach and reflects the delay of anticipated legislation to create the Audit, Reporting and Governance Authority (ARGA), which had an impact on the associated increase in capacity, cost and headcount previously expected to occur in 2023.

Overall, the budgeted cost of the FRC and the UK Endorsement Board will increase to £67.9m, up from £59.8m the previous year, with a 9.7 per cent increase in budgeted headcount by March 2024.

FRC chief executive, Sir Jon Thompson, commented: “Despite the continued delay to the legislation required to create ARGA, 2022 was another busy period for the FRC as we continue to focus on the changes we can make using our existing powers and remit.

“This plan will enable us to deliver on our mission to serve the public interest and improve the quality of corporate governance and reporting and continue to work towards the aspirations of the reform programme.”

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