The Financial Reporting Council (FRC) has issued a position paper setting out a roadmap detailing the next steps for reforming the UK’s audit and corporate governance framework and the watchdog’s transition into a reformed regulatory authority.
Jon Thompson, the FRC’s chief executive officer, said: “These long-awaited reforms are a once-in-a-generation opportunity to ensure corporate Britain upholds the highest standards of governance and protects those stakeholders who rely on high-quality reporting.
“While we await government legislation, the FRC is pressing ahead with those changes to standards and codes which will improve and enhance the UK’s audit and corporate governance framework and to lay the groundwork for the creation of [the new body].”
Publication of the paper follows the release recently of the government’s response to its consultation on strengthening the UK’s corporate governance, reporting and audit regime, and the plan to set up the Audit, Reporting and Governance Authority (ARGA) to replace the FRC.
Guy Rainbird, public affairs director at the Association of Investment Companies, said the roadmap contained “important proposals” for updating the UK Corporate Governance Code and developing guidance for audit committees on audit tendering.
He said: “The FRC’s ambition to simplify and improve reports and accounts is especially welcome. Annual reports are the cornerstone of company reporting.
“Making these clearer, with information valued by shareholders, will help to build shareholders’ trust in auditing and corporate governance, thereby maintaining the integrity of markets.”
The centrepiece of the reform agenda is a series of updates to the UK Corporate Governance Code.
The FRC said the updates to the Code – the first in four years – will apply to reporting periods beginning on or after 1 January 2024.
A consultation on the changes is scheduled to take place from the first quarter of next year.
In addition to the revisions to the Corporate Governance Code and other literature codes, standards and guidance, the FRC has plans to develop new standards and guidance and pursue an agenda for “behavioural change”.
The watchdog acknowledges that the government will have to bring forward new legislation to implement some of the proposed changes.
“Making these clearer, with information valued by shareholders, will help to build shareholders’ trust in auditing and corporate governance, thereby maintaining the integrity of markets”
Guy Rainbird, public affairs director, AIC
Among the areas in line for a major shake-up as a result of the revisions to the Corporate Governance Code is non-financial reporting.
The FRC said it is planning a series of “revisions to reflect the wider responsibilities of the Board and Audit Committee for expanded Sustainability and ESG reporting”.
The watchdog also reiterated its support for “the efforts of the International Sustainability Standards Board to develop a global baseline to support sustainability reporting”, and pledged to “actively engage” with the new board’s activities.
The release of the reform blueprint follows three separate external reviews into the FRC and the UK audit profession.
The Kingman review examined regulation, including the role and structure of the FRC, while the CMA inquiry looked at audit resilience, and the later Brydon review – led by Brydon, former London Stock Exchange Group chair – focused on the nature and scope of audit.
In May, the government released its formal plan for revamping the country’s audit market and making businesses more accountable to stakeholders.
The proposals, however, fell short of hopes for a UK version of the Sarbanes-Oxley Act and Jon Thompson blasted the omission as a “missed opportunity”.