The FSA has published a consultation paper outlining certain changes that it proposes to make to the Disclosure and Transparency Rules (DTRs) in implementation of the Statutory Audit Directive and the Company Reporting Directive (Directives 2006/43/EC and 2006/46/EC). Reponses to the consultation should be submitted by 20 March 2008. It is envisaged that the new rules will come into effect in June 2008 for financial periods beginning on or after 29 June 2008. An overview of certain of the key changes is set out below.

Audit committee

The changes proposed in implementation of the Statutory Audit Directive include the insertion of a new rule into the DTRs requiring companies incorporated in the UK whose shares are traded on a regulated market (including the main market of the London Stock Exchange, but not AIM) to have an audit committee. It is envisaged that the audit committee will need to have at least one independent member and a member who has competence in accounting or auditing. The same person can fulfil the independence and financial expertise requirements.

Corporate governance statement

The changes proposed in implementation of the Company Reporting Directive include the insertion of a new rule into the DTRs requiring companies incorporated in the UK whose shares are traded on a regulated market to include a separate corporate governance statement in their annual reports. The proposed new rules go beyond the existing provisions of the Listing Rules which only require companies with a primary listing to include in their annual report a statement of how they have applied the principles set out in the Combined Code on Corporate Governance and a "comply or explain" statement setting out the extent to which they have complied with the relevant provisions of the Combined Code (LR9.8.6R (5) and (6)). Although much of the information required by the new rules is already included in companies' annual reports under existing rules, there will be a new requirement to describe internal control and risk management systems in relation to the financial reporting process.

The FRC's consultation paper on its proposed changes to the Combined Code includes a helpful appendix setting out the areas where the new FSA corporate governance rules will overlap with the Combined Code. For more detail on the FRC consultation paper please see the article entitled "Combined Code – FRC consults on proposed changes" included in this issue of our e-bulletin.

The FSA consultation document can be viewed here