As we have previously reported, the Financial Reporting Council (FRC) in the UK is making a number of amendments to the UK Corporate Governance Code (the Code) and also to its related Guidance on Audit Committees. The FRC launched a public consultation in this regard which closed on 13 July 2012. On 28 September 2012, the FRC published a feedback statement following this consultation.
The changes, as amended following the feedback from the consultation, include the following:
- The board must confirm in the annual report that the report and accounts, taken as a whole, are fair, balanced and understandable and provide the information needed for shareholders to assess the company's performance, business model and strategy, and the board should establish arrangements to enable it to make this assessment and give this confirmation.
- FTSE 350 companies should not put their external audit contract out to tender every ten years. The company's intention to put the audit out to tender must be recorded in the previous year's annual report.
- The audit committee will be required to report to the board on the external audit, including the process by which they have assessed the effectiveness of the external audit.
- The preface to the code will set out the features that the FRC regards as characteristic of an informative explanation.
New editions of the UK Corporate Governance Code and the Guidance on Audit Committees, incorporating the changes, will now apply to reporting periods beginning on or after 1 October 2012. There will also be some transitional arrangements in relation to audit tendering, details of which will be available on the FRC’s website.
This development will be of interest to certain Irish companies as the Corporate Governance Code is followed in Ireland on a "comply or explain" basis by companies listed on the Main Securities Market of the Irish Stock Exchange.
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