On 29 June 2008, a new chapter was added to the Disclosure and Transparency Rules (DTRs) in order to implement certain parts of the Statutory Audit Directive (Directive 2006/43/EC) and the Company Reporting Directive (Directive 2006/46/EC). The changes made are outlined in the FSA's June policy statement 08/6 and apply to all financial years beginning on or after 29 June 2008. Certain minor consequential amendments to the FSA Handbook Glossary and the Listing Rules have also been made. This article highlights certain aspects of the key provisions.

DTR 7.1 – Audit committees

Broadly, DTR 7.1 requires a UK company with transferable securities admitted to trading on a regulated market (which includes the main market of the London Stock Exchange but not AIM) to have a "relevant body" (in practice, an audit committee) which is responsible for monitoring (a) the financial reporting process, (b) the effectiveness of the company's internal control, internal audit and risk management systems, (c) the statutory audit of the annual and consolidated accounts and (d) the independence of the statutory auditor. The audit committee must have at least one independent member and at least one member competent in accounting and/or auditing (though these requirements can be satisfied by the same person). Companies subject to DTR 7.1 are required to publicly disclose which body carries out the functions described above and how it is composed. In recognition of the overlap between DTR 7.1 and the Combined Code, DTR 7.1.7G indicates that compliance with the relevant provisions of the Combined Code will result in compliance with the requirements of DTR 7.1.

DTR 7.2 – Corporate governance statements

Broadly, DTR 7.2 requires a UK company with transferable securities admitted to trading on a regulated market to include a corporate governance statement in a separate section of its directors' report. This statement must, amongst other things (a) refer to the corporate governance code to which the company is subject and/or may have voluntarily decided to apply and/or all relevant information about the corporate governance practices applied beyond the requirements of national law, (b) explain the extent to which the company departs from that corporate governance code and its reasons for doing so and (c) describe the main features of the company's internal control and risk management systems in relation to the financial reporting process. There is a degree of overlap between the provisions of DTR 7.2 and both the Combined Code and LR 9.8.6R(6) (the comply or explain rule in the Listing Rules). Consequently, DTR 7.2.4G and 7.2.8G indicates that compliance with the relevant provisions of the Combined Code and the Listing Rules will satisfy those overlapping requirements of DTR 7.2.

To view the FSA's policy statement 08/6 (which contains the text of the changes to the FSA Handbook Glossary at Appendix A, the changes to the Listing Rules at Appendix B and the new DTR 7 at Annex C), please click here (28 page pdf)

Alternatively, the text of the new rules can be viewed in the relevant parts of the FSA Handbook on the FSA website.