The UK’s Corporate Governance Code will be reviewed for the first time in four years, with new rules making boards more accountable for fraud and their company’s finances, and increasing accountability for wrongdoing.
The Financial Reporting Council, which oversees the audit industry, announced Tuesday plans to implement recommendations the government made earlier this year to reform corporate governance.
The document includes revisions to existing business practices, enhancements to auditing and accounting standards, and setting expectations to encourage behavioral change ahead of statutory mandates promised in future legislation.
The enhanced UK Corporate Governance Code is designed to provide a stronger framework for reporting on the effectiveness of internal controls, increasing the responsibility of boards to enhance sustainability and the environmental , social, and governance principles.
There is also new guidance on reporting misconduct by directors, which is expected to include a clause recommending that directors’ remuneration arrangements in the event of a company insolvency include certain minimum clawback terms on remuneration. increase.
FRC CEO John Thompson said:
Some of the changes require primary legislation, indicating the government will begin work on a draft bill for publication at the next session of Congress. Other actions are addressed through secondary legislation and changes to existing regulatory actions by the FRC.
Mr Thompson added: “While awaiting government legislation, the FRC is advancing standards and code changes that will improve and strengthen the UK’s audit and corporate governance framework.”
The FRC has also pledged to work with governments on ways to reduce the nonfinancial reporting burden for businesses.
“We have already considered potential opportunities to simplify and improve our reporting requirements so that the quality of information available to users of corporate reporting, including both the financial statements and the first half of the annual report, is not impacted. We are,” the document said. ”.
The FRC, which is transforming into a stronger body called the Audit, Reporting and Governance Agency (Arga), creates minimum standards for audit committees.
Concern over the strong position of the “Big 4” audit firms – Deloitte, EY, KPMG and PwC – has led to concerns about how the audit tenders they conduct take into account the need to increase the diversity of the market. There are also provisions that require the board to consider whether the
The FRC said it is developing guidance on director fraud reporting, audit and assurance policies, capital maintenance and dividends, including distributable earnings.
