Included in this issue: ICAEW updated guidance on realised and distributable profits; BEIS Select Committee publishes report on Corporate Governance; Investors reminded of developments in financial reporting and more...

Company Law

ICAEW updated guidance on realised and distributable profits

The Institute of Chartered Accountants in England and Wales (ICAEW) and the Institute of Chartered Accountants of Scotland has published TECH 02/17, containing updated guidance on realised and distributable profits under the Companies Act 2006 and all relevant secondary legislation. The ICAEW has also published marked-up versions of the guidance to show the changes made.

Companies House updates filing accounts guidance

Companies House has updated its ‘Life of a company: annual requirements guidance’ to cover legislative changes relating to accounts filing requirements introduced by the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015.

Corporate Governance

BEIS Select Committee publishes report on Corporate Governance

The Select Committee of the Department of Business, Energy and Industrial Strategy (BEIS) has published its report on Corporate Governance (Report) having launched an inquiry in September 2016 following the high-profile governance failings in BHS and Sports Direct and in light of the Prime Minister's commitment to bring forward measures to tackle corporate irresponsibility. The Financial Reporting Council (FRC) has welcomed the Report, as has the Institute of Directors. Once the Government has responded to it, the FRC intend to commence a review of the UK Corporate Governance Code to "simplify and shorten it and set it on its course for the next 25 years". It remains to be seen the extent to which the government decide to take forward the proposals.

Poll reveals extent of stakeholder engagement

Nearly 75% of organisations actively consider the views of their wider stakeholder base, according to the results of a poll conducted by ICSA: The Governance Institute and recruitment specialist, The Core Partnership. However, the results also indicated there is room for improvement in the level and extent of stakeholder engagement.

Financial Reporting

Investors reminded of developments in financial reporting

The Financial Reporting Council (FRC) has written to institutional investors ahead of the 2017 shareholder meeting season in order to highlight recent developments in narrative and financial reporting. In particular, the letter focuses on issues relating to:

  • the strategic report;
  • governance reporting;
  • audit committee reports; and
  • financial statement disclosures.

FRC publishes revised reporting review procedures

The FRC has published a revised version of its operating procedures for reviewing company reporting together with revised frequently asked questions to reflect the changes to the Conduct Committee's procedures. The revised operating procedures take effect from 1 April 2017. As previously reported, the new procedures will mean that the FRC will publish the names of those companies whose reports and accounts it has reviewed, once the cases are closed.

Premium listed companies are expected to disclose the nature of any interaction with the FRC in their Audit Committee Report, however all companies are encouraged to do so. The FRC will monitor the extent and balance of such disclosures.

Business Ethics, Modern Slavery and Corporate Crime

Report of Joint Committee on Human Rights published report on Modern Slavery Act

The House of Commons and House of Lords' Joint Committee on Human Rights published a report on human rights and business. The report sets out various shortcomings of the Modern Slavery Act 2015 and the related guidance, specifically that the requirements to publish a statement are too weak leading to significant variations in the quality of disclosure.

Also, there is no central list of companies required to report, and no requirement for businesses to upload their statements onto a central database (as with Gender Pay Gap and Payment Practices reporting). The Joint Committee believes that this is a barrier to effective compliance monitoring.

Further, the Joint Committee also recommends that the government bring forward legislative proposals to make reporting on due diligence for all relevant human rights, not just the prohibition of modern slavery, compulsory for large businesses, with a monitoring mechanism and an enforcement procedure.

Extension of the PSC regime to overseas entities

Establishing a register of beneficial owners of overseas entities

The Department of Business, Energy and Industrial Strategy (BEIS) is seeking views on proposals to establish a register of the beneficial owners of overseas entities that either own UK property, or that engage in UK government procurement. The paper sets out the basic framework of the government's proposals, including that:

  • all overseas legal entities that can hold property or that can bid on central government procurement contracts will be within the scope of the new regime;
  • provisions similar to those under the existing PSC regime as regards how to identify beneficial owners, what reasonable steps an entity should take to do so and the required particulars that must appear on the publicly available register will be applied;
  • criminal sanctions will apply in respect of a number of failures to comply with the new regime; and
  • overseas entities that own or wish to acquire UK property must supply beneficial ownership information to Companies House and apply for a registration number. Registration of title to property (which will encompass freehold and some leasehold titles) will not be possible without having done so.

BEIS has asked for submissions by 15 May 2017.