"New version of the UK Corporate Governance Code provides further guidance on audit committees, diversity and 'comply or explain' rules"
The FRC has recently published a revised version of the UK Corporate Governance Code ("Code") and associated Guidance for Audit Committees which applies to reporting periods beginning on or after 1 October 2012. The changes to the Code encompass those relating to diversity announced in Autumn 2011 (previously reported in the Olswang Corporate Quarterly here) and a number of other changes including:
- guidance on what is expected by way of an explanation of non-compliance with the Code;
- a new statement in the annual report that the board consider the annual report and accounts to be fair, balanced and understandable and to provide the information necessary for shareholders to assess the company's performance, business model and strategy;
- additional reporting obligations for audit committees, which should now report details of the significant issues considered in relation to the accounts and an explanation of the process used to assess the effectiveness of the external audit; and
- a requirement for FTSE 350 companies to put the external audit contract out to tender at least once every 10 years.
Boards should now consider whether any additional arrangements are required to enable them to make the new statement required in relation to the annual report and accounts. In addition, the practicalities of putting the audit out to tender will need to be considered. The FRC is to publish non-binding transitional arrangements on its website to assist companies with this and to minimise disruption to the audit market should too many companies put their audit out to tender at the same time. Further consultation will also be undertaken as to whether guidance on the tendering process would be helpful.
The FRC anticipates further changes to the Code may be required depending on the outcome of the current Government consultation in relation to narrative reporting (expected later in 2012). However, such changes to the Code will not require a period of consultation unless they are substantive.
In addition, the FRC announced in June 2012 that it will consult on further changes to the Code once proposed legislative changes to reporting and voting on executive remuneration are finalised. For further details on this issue, see our earlier article Shareholder Spring: the remuneration revolution. The consultation will focus on whether the clawback provisions in the Code should be extended, whether executive directors should be permitted to sit on the remuneration committees of other companies and whether companies should be required to engage with shareholders and the market if a substantial majority is not achieved on any vote on remuneration.