The FRC has confirmed its plan to scale back audit changes by taking forward under half of the original 18 proposals it set out in the consultation with its stakeholders.
It intends to publish an updated code in January 2024
The news comes after His Majesty’s Speech to the Parliament did not prioritise the primary legislation to modernise the regulation of audit, corporate reporting and governance.
Despite the move FRC stated that there is “broad stakeholder consensus” that this reform continues to be “necessary to restore investor and public trust” following the of several high-profile businesses including Carillion, BHS and Thomas Cook.
The FRC aims to enhance the quality of audit and corporate reporting and governance, whilst supporting the UK’s economic growth and its international competitiveness and the government’s broader ambition of making the UK “the best place in the world to start, grow and invest in a business”.
Under the new revised code:
- There will be a small number of changes that streamline and reduce duplication associated with the code that were overwhelmingly supported by stakeholders in the interests of reducing burdens.
- The main substantive change the FRC will take forward concerns revisions to its original proposal on internal controls. The decision has been informed by “very helpful” stakeholder feedback to ensure it ends up with a more targeted and proportionate code revision. This includes allowing more time for its implementation and ensuring the UK approach clearly differentiates from the much more intrusive approach adopted in the US.
However, The FRC will not take forward the remainder, over half, of the original proposals. These include:
- Those relating to the role of audit committees on environmental and social governance and modifications to existing code provisions around diversity, over-boarding, and Committee Chairs engaging with shareholders.
- A number of other proposals as a result of the Government’s recent decision to withdraw its Statutory Instrument relating to an audit and assurance policy, reporting on distributable profits and resilience statement requirements.
It intends to publish an updated code in January 2024. However, the FRC is conscious that some stakeholders have raised concerns about how its guidance issued under the code can have unintended effects on businesses, investors and their advisers.
To help tackle this, from January 2024, the FRC intends to give an additional remit to its Stakeholder Insight Group to provide the FRC with advice on whether there are aspects of its current and planned guidance associated with the code that could be improved to ensure the right balance is struck between supporting effective governance and reducing unnecessary burdens.
The group’s membership consists of a mixture of investors, preparers, advisors and related membership bodies. It will report on this additional remit directly to the FRC CEO.
Richard Moriarty, FRC CEO, said: “Once the updated UK Governance Code is issued in January 2024, we will as our next priority start to engage with stakeholders on how best to review the Stewardship Code, including understanding how it works in practice and what changes may be required going forward to ensure it remains fit for purpose. In doing so, we recognise the need to engage closely with other regulators who also have an interest in the operation of this Code.”
Writes Accountancy Today