The Financial Reporting Council (FRC) has launched a public consultation on proposed changes to the UK’s Corporate Governance Code.
FRC chief executive officer Jon Thompson said: “Good corporate governance contributes to long-term company performance by helping to build an environment of trust, transparency, and accountability necessary for fostering long-term investment, financial stability, and business integrity.
“Enhancing the Corporate Governance Code will meet the needs of all corporate stakeholders, including investors, employees, and suppliers, and boost the resilience of the UK economy, ensuring it continues to attract talent and investment.”
The amendments are broadly technical and do not address fundamental concepts such as ‘comply or explain’.
And although the proposed changes to the Code cover all its five sections, they are concentrated mainly in section 4 on Audit, Risk, and Internal Control.
This review is less fundamental than the watchdog’s last review in 2018, with the changes focused on seven broad topics:
- strengthening the framework for reporting on and evidencing prudent and effective risk management and internal controls;
- reflecting the growing importance of expanded ESG reporting for board and audit committees;
- removal of duplication by cross-referencing to the Audit Committee and External Audit: Minimum Standard, and highlighting the importance of audit tendering;
- requirement for Public Interest Entities (PIE) to produce a Resilience Statement;
- improvements to corporate reporting prompted by the FRC’s Review of Corporate Governance Reporting;
- measures to improve on the monitoring and reporting of diversity and inclusion among board and senior management; and
- director time commitments, over-boarding and remuneration-related.
The consultation paper also noted that the government is preparing legislation to introduce the resilience statement requirement for PIEs – a company with a turnover above £750m or more than 750 employees – as well as other proposals.
In addition, the FRC plans to review its existing guidance on audit committees, board effectiveness, and risk management, internal control and related financial and business reporting.
The FRC will also hold outreach events addressing the topics of leadership and reporting, boards, and internal controls.
Interested parties have until 13 September 2023 to make their views known.
The revisions to the Code will take effect for reporting periods beginning on or after 1 January 2025.
They come in response to the government’s push to restore trust in audit and corporate governance, as set out in its white paper on Restoring Trust in Audit and Corporate Governance.
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