The FRC has announced the next steps to encourage companies to improve the way they report to investors and it has published on 1 September 2011 two new reports that will lead to additional consultations on the UK Corporate Governance Code and related guidance.
As this follows on from the previous work the key areas covered are:
Strategy, risk and going concern
The role of the audit committee
Audit and the role of auditors
Other aspects of the audit market
There is much covered in these documents but the key features are:
A proposal that the audit committee’s remit should be extended to include consideration of the whole annual report and to ensure the report, viewed as a whole, is fair and balanced
Amending auditing standards to ensure that auditors always report the outcome of their review of the whole annual report
Establishing a Financial Reporting Laboratory to remove roadblocks to effective reporting and promote innovation
A proposal to require companies to put their audits out to tender at least once in every ten years, or explain why they have not done so.
A BIS White Paper is promised for ‘early autumn’.
The FRC proposes in relation to audit committees:
That the audit committee should report to the whole board and, after that report has been accepted by the whole board of directors, it should be published in full in the company’s annual report.
That the UK Corporate Governance Code and related Guidance for Audit Committees will be revised following consultation with the aim of extending the remit of the audit committee to include consideration of the whole annual report, including the narrative report, to determine whether the information provided is necessary for stakeholders to assess the performance and prospects of the company and whether the report, viewed as a whole, is fair and balanced.
Consultations will follow and ‘Turnbull’ will be updated and if necessary changes may also be made to the UK Corporate Governance Code. These changes will have important implications for boards and companies.