The Financial Reporting Council (FRC) is consulting on changes to the UK Corporate Governance Code (the Code), which sets out good practice for UK listed companies. This consultation forms part of the FRC's regular two-yearly review of the Code (used to identify and implement any necessary changes) and follows on from the consultations held in October and November last year.
Some of the main changes proposed in relation to 'risk management and going concern' include requiring companies to state:
- in their financial statements whether they consider it appropriate to adopt the going concern basis of accounting and to identify any material uncertainties in their ability to continue to do so;
- whether they believe they will be able to continue in operation and meet their liabilities, taking account of their current position and principal risks. As part of this, companies should specify the period covered by the statement and why they consider it appropriate. It is expected that the period assessed will be significantly longer than 12 months.
On directors' remuneration the changes include companies:
- placing greater emphasis on ensuring remuneration policies are designed with the long-term success of the company in mind, and understanding that the lead responsibility for doing so rests with the remuneration committee;
- putting in place 'claw back arrangements' - arrangements enabling a company to recover sums paid or to withhold variable pay when it was considered appropriate to do so;
- explaining, when publishing AGM results, how they intend to engage with shareholders when a significant percentage of them have voted against any resolution.
Other proposed changes include that companies should monitor their risk management and internal control systems and, at least annually, carry out a review of their effectiveness, and report on that review in the annual report.
The consultation closes on Friday 27 June 2014. If the proposed changes are implemented they will apply to financial years beginning on or after 1 October 2014.