Some companies regulated by the Financial Reporting Council (FRC) may have been unaware that its annual levy is voluntary, according to documents obtained by IPE using the Freedom of Information (FoI) Act.
The Office for National Statistics (ONS) considered the issue of the FRC’s levy as part of its assessment of whether or not the accounting watchdog was under central government control.
The FRC requests annual levies from UK entities including listed and private companies (known as “preparers”), insurers and pension schemes. Schemes with more than 5,000 members are asked to contribute £3.12 (€3.52) per 100 members.
In a document compiled in 2010, the ONS stated: “Excerpts from the FRC guidance relating to the three main levies are set out below.
“These guides could be read to indicate that the FRC has or is using statutory powers under the Companies Act 2004 to require payment of the preparers and insurance levy, (i.e. the levy here is not voluntary).”
In early 2010, the ONS quizzed the FRC about the voluntary nature of the levy and called for proof that companies knew they were under no obligation to pay.
The FRC replied: “The entities falling within the levy group are sent requests for payment.
“The requests do not specifically state that the payment is voluntary given the information on the FRC website, its practice of consulting on the levy annually and the capability of each recipient of a request to raise queries.
“Where any recipient queries whether they must pay the levy requested they are told very clearly that there is no obligation to pay. In the event that a recipient of a request does not pay, the FRC has no right to require payment.”
The ONS also established that some firms refused to pay.
It concluded: “Technically the levy does appear to be voluntary, although it does not seem unreasonable to assume that some companies could be under the impression that the levy is compulsory.
The FRC added that the factsheets accompanied its requests for payment.
Although the FRC warned that it could ask the government to put the levy on a statutory footing, sources familiar with the issue have told IPE this might be difficult to achieve in practice.
Government questioned over FRC status
Meanwhile, pressure is mounting for the UK government to come clean over its handling of the FRC’s status as a publicly accountable body.
Baroness Sharon Bowles, a Liberal Democrat member of the UK upper house of parliament, tabled nine parliamentary questions on the topic last week.
The former chair of the European Parliament’s Economic Affairs Committee asked the Department for Business, Energy and Industrial Strategy (BEIS) to clarify why it described the FRC as a private sector body in its memorandum of understanding with the watchdog.
Other questions touched on the FRC’s application of the FoI Act and whether the government had guaranteed its legal costs in actions brought against the major accounting firms.
Documents released to IPE under FoI laws detailed the lengths to which the FRC, HM Treasury and BEIS went in order to dodge classification as a public body.
Regulator consults on strategy and budget
The FRC has launched a consultation on its proposed strategy for “business and public trust” covering the next three years and its budget for the next 12 months.
The FRC said in a statement that its strategy was centred on delivering “increased confidence and public trust in UK companies in line with its mission to promote transparency and integrity in business”.
The audit watchdog also pledged to “enhance the speed and effectiveness of its enforcement activities and has committed to increased transparency when closing enforcement cases”.