The Financial Reporting Council has published its final draft of the UK Corporate Governance Code which is expected to apply (subject to Parliamentary approval) to accounting periods beginning on or after 17 June 2016 and to all companies with a premium listing of equity shares regardless of whether they are incorporated in the UK or elsewhere. The draft follows on from the consultation “Enhancing Confidence in Audit: Proposed Revisions to the Ethical Standard, Auditing Standards, UK Corporate Governance Code and Guidance on Audit Committees” and resulting feedback.
Minor amendments are envisaged to the Code, such as:
- a new requirement that the audit committee as a whole shall have competence relevant to the sector in which the company operates (C.3.1).
- the existing requirement that FTSE 350 companies should put the external audit contract out to tender at least every ten years has been deleted (C.3.7).
- a new requirement that the annual report sets out advance notice of any external auditor retendering plans (C.3.8).
The FRC has committed not to amend the Code further until at least 2019.
The FRC has also published a final draft of its Guidance on Audit Committees. While boards are not required to follow this guidance, it is intended to assist them when implementing the relevant provisions of the Code.
The FRC has stated that it will, from 2017, publish the names of those companies or company audits which have been the subject of the FRC’s Corporate Reporting Review (CRR) and Audit Quality Review (AQR). It notes that, as a result of the identification of those companies subject to CRR and AQR reviews, audit committees are encouraged to report even if there were no significant issues, in order to avoid speculation. Disclosure of AQR and CRR reviews should be factually accurate, fair and balanced in order for the market to understand and avoid the need for further public clarification. A focus of the FRC’s ongoing monitoring will be how audit committees report the outcomes of AQR and CRR reviews in their annual reports.