New regulations (the Amending Regulations) have recently been made by the Minister for Business, Enterprise and Innovation, amending the European Union (Disclosure of Non-Financial and Diversity Information by Certain Large Undertakings and Groups) Regulations 2017 (the Non-Financial Disclosure Regulations). The Amending Regulations were made on 9 October 2018, and came in to operation on 17 October 2018.

The Non-Financial Disclosure Regulations apply to, and impose different disclosure obligations on, certain types of companies, defined as "applicable companies" and "large traded companies". In essence, applicable companies will be obliged to include in their directors report a non-financial statement containing, subject to certain exceptions, information on their policies, main risks and outcomes relating to environmental, social and employee matters, respect for human rights, and corruption and bribery issues. Separately, in the case of "large traded companies", the Non-Financial Disclosure Regulations require the directors of such companies to include in their corporate governance statement details of the diversity policy applied in relation to the company's board of directors with regard to aspects such as age, gender or educational and professional backgrounds, the objective of its diversity policy, how it has been implemented, and the results of that policy, in the financial year.

The definitions are complicated, but in summary, "applicable companies" will include large PLCs, large credit institutions and large insurance companies with more than 500 employees on average. "Large traded companies" will include large PLCs (as well as certain other company types) with shares or debentures admitted to trading on a "regulated market" in an EEA member state, even if they do not also satisfy the employee requirements that apply to "applicable companies".

Our note summarising the main requirements of the Non-Financial Disclosure Regulations, which apply to financial years beginning on or after 1 August 2017, is available here.

Key changes made by the Amending Regulations

The Amending Regulations make a number of technical changes to the Non-Financial Disclosure Regulations. One of these is the introduction of a new requirement that an "applicable company" which is a holding company must prepare a non-financial statement or a separate statement in respect of the group of which it is the holding company.

Another change is that where a subsidiary undertaking does not prepare entity financial statements, or where its entity accounts do not disclose the average number of employees, then in determining whether or not it satisfies the requirement set out in the Non-Financial Disclosure Regulations of an average number of employees which exceeds 500 in relation to a financial year, that figure will be determined from comparable information in the subsidiary's undertaking accounting records by applying alternative specified methodologies.

The Amending Regulations also introduce some relieving provisions for the benefit of the statutory auditors of applicable companies. Currently, the statutory auditors of an applicable company, when preparing their report on the financial statements of the company, are required to establish that the company has prepared the non-financial statement either in its directors' report or in a separate statement. The Amending Regulations will alter this obligation, so that the statutory auditors will be required to establish that the company has provided the non-financial information in respect of the financial year immediately preceding the financial year that is the subject of their report. The Amending Regulations also clarify that where the applicable company has not provided the information required, then the statutory auditors will state this in their report.

The Amending Regulations also disapply the requirements imposed on statutory auditors under section 336(5) of the Companies Act 2014 to those parts of the directors' report dealing with non-financial statements. Section 336(5) requires an auditor's report (subject to an exception where the company qualifies for the micro companies regime and is thereby exempt from preparing a directors' report) to state whether the information given in the directors' report for the financial year for which the statutory financial statements are prepared is consistent with the company's statutory financial statements in respect of that year, and that the directors' report has been prepared in accordance with applicable legal requirements. The Amending Regulations appear to disapply these requirements to the parts of the directors' report that deal with non-financial statements, subject to complying with the amended obligation referred to above in relation to the preparation of the non-financial statement.