United Kingdom | Publication | July 2022
This checklist is intended to help UK-listed companies keep abreast of key developments in the fast-moving areas of corporate governance and narrative reporting.
It sets out our thoughts on some of the main areas of change during the last few months, as well as a list of key developments by area, including links to more detailed summaries of those developments.
A notable development in the period covered by this checklist is the confirmation of a number of future reforms to governance and reporting requirements. Major changes for public interest entities in particular were set out in the UK Government’s response to its 2021 consultation, Restoring trust in audit and corporate governance. A wider range of companies will have to comply with many of the new requirements as they are introduced, as they will come within the expanded “public interest entity” definition. Many of these new requirements will need to be introduced via primary or secondary legislation, or be the subject of prior consultation, so the timing of their implementation is unclear. However, the Financial Reporting Council has recently published a Position Paper on matters within its remit which is helpful.
So far as recently introduced reporting requirements are concerned, there is now guidance for those unlisted public companies, large private companies and limited liability partnerships that need to make the new mandatory climate-related financial disclosures in their strategic report. The updated Guidance on the Strategic Report published recently by the Financial Reporting Council will also assist with this. In addition, listed companies must now “comply or explain” in their annual report against new diversity and inclusion targets relating to their board and executive management teams, as set out in the Financial Conduct Authority’s (FCA) Listing Rules.
It is also worth noting that, in the period covered by this checklist, both the FCA and the London Stock Exchange plc have rescinded temporary measures introduced during the pandemic, allowing for, among other things, delayed annual and interim financial reporting by listed and AIM companies. These temporary reliefs are no longer available for reporting periods ending on or after June 28, 2022.
FRC: Consultation on funding the Audit, Reporting and Governance Authority (July 2022): On July 29, 2022 the Financial Reporting Council (FRC) published a consultation paper setting out proposals for how the new Audit, Reporting and Governance Authority (ARGA), into which the FRC will transition, should be funded. Further details are here.
FRC: Annual Enforcement Review (July 2022): On July 28, 2022 the FRC published its fourth Annual Enforcement Review which reveals a record number of cases were resolved in the last year and record financial sanctions of £46.5m were imposed. The number and scope of non-financial sanctions have also grown. These sanctions are targeted at the failures identified and are directed at identifying the causes of the failures, imposing measures to prevent recurrence, and monitoring progress and effectiveness of the required steps through ongoing reporting to the FRC. Further details are here.
FRC: Restoring Trust in Audit and Corporate Governance – Position Paper (July 2022): On July 12, 2022 the FRC published a Position Paper setting out the next steps to reform the UK’s audit and corporate governance framework. The Position Paper follows the Government’s recent response to the White Paper consultation conducted in 2021 on strengthening the UK’s corporate governance, corporate reporting and audit systems, including the creation of the ARGA, to replace the FRC. The Position Paper builds on the areas of the Government’s response that fall within the FRC’s remit. Further details are here.
FRC: Consultation on firm-level Audit Quality Indicators (June 2022): On June 22, 2022 the Financial Reporting Council (FRC) published a consultation document seeking views on publicly available audit quality indicators (AQIs) to drive audit quality improvements. This follows a Thematic Review of AQIs published by the FRC in May 2020. Further details are here.
FRC: Professional Judgement Guidance for Auditors (June 2022): On June 23, 2022 the FRC published new guidance for auditors to improve how they exercise professional judgement. The guidance includes a framework for making professional judgements and a series of illustrative examples showing how professional judgement might be used in practice. The FRC states that if it is applied widely, the guidance will improve audit quality by enhancing the consistency and quality of professional judgement exercised by auditors. Further details are here.
BEIS: Restoring trust in audit and corporate governance – Government response to consultation (May 2022): On May 31, 2022 the Department for Business, Energy and Industrial Strategy (BEIS) published a document summarising responses to and plans for action following its consultation on the White Paper it published in March 2021 setting out wide-ranging reforms to the UK’s audit and corporate governance framework. Further details are here and our detailed briefing on the response document is here.
Prime Minister’s Office: Queen’s Speech 2022 (May 2022): The Queen’s Speech, delivered on May 10, 2022, set out the programme of legislation that the Government intend to pursue in the forthcoming parliamentary session. It included details of a draft Audit Reform Bill. Further details are here.
ICAEW: Disclosure of auditor remuneration – Technical release (April 2022): On April 26, 2022 the ICAEW Financial Reporting Facility published TECH 01/22FF to provide guidance on the disclosure of auditor remuneration for the audit of accounts and other (non-audit) services, in accordance with the requirements of the Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008 as amended (Regulations). Further details are here.
FRC: CRR Thematic Review of TCFD disclosures and climate in the financial statements (July 2022): On July 29, 2022 the FRC published a thematic report setting out the results of a review of both the Task Force on Climate-Related Financial Disclosures (TCFD) and of climate-related reporting in the financial statements of 25 premium listed companies. This follows the introduction by the FCA of specific TCFD climate-related disclosure requirements for listed companies, with the first reports issued by premium listed companies in relation to December 2021 year ends. Further details are here.
FCA: Review of TCFD-aligned disclosures by premium listed commercial companies (July 2022): On July 29, 2022 the FCA published a report setting out the results of their preliminary review of 171 premium listed commercial companies’ TCFD disclosures, which includes an analysis of companies’ TCFD disclosures by sector and company size. This follows the introduction by the FCA of specific TCFD climate-related disclosure requirements for listed companies, with the first reports issued by premium listed companies in relation to December 2021 year ends. Further details are here.
LSE: Consultation on the creation of London Stock Exchange’s Voluntary Carbon Market and amendments to the Admission and Disclosure Standards – Market Notice N12/22 (May 2022): In May 2022, the London Stock Exchange (LSE) published a consultation document relating to the creation of a new Voluntary Carbon Market and amendments to its Admission and Disclosure Standards (Standards). This follows an announcement by the LSE at COP26 that it would be developing a market offering to support publicly traded carbon funds and an announcement in November 2021 that the LSE was developing a new market solution to accelerate the availability of financing for projects that will support a just transition to a low-carbon economy. The goal would be to address two major challenges: access to capital at scale for the development of new climate projects worldwide; and primary market access to a long-term supply of high-quality carbon credits for corporates and investors. Further details are here. In July 2022, in N14/22, the LSE announced that the consultation period had been extended to August 1, 2022 to enable the LSE to pose further questions and make further changes on the proposed launch of the Voluntary Carbon Market designation. Further details are here.
Transition Plan Taskforce: A Sector-Neutral Framework for private sector transition plans - Call for Evidence (May 2022): The Transition Plan Taskforce (TPT) was launched in April 2022 by HM Treasury with a two year mandate to develop a gold standard for transition plans so as to help drive decarbonisation by providing a framework and benchmark that helps financial institutions and companies to prepare rigorous transition plans. These plans will specify how entities can support the UK’s net zero transition, through disclosures on how they will achieve pledged targets and support economy-wide decarbonisation. As part of this, on May 11, 2022 the TPT published a Call for Evidence which sets out the overall direction of travel of the TPT in preparing a Sector-Neutral Framework to enable companies across all sectors to develop standardised and meaningful plans to support the transition of the economy to net zero, and asking for stakeholder input to inform the TPT’s future work on this. Further details are here.
BEIS: Update to Green Finance Strategy – Call for Evidence (May 2022): On May 11, 2022 BEIS published a Call for Evidence to support its update of the Green Finance Strategy it published in July 2019. Further details are here.
ISSB: Exposure drafts relating to sustainability disclosures published (March 2022): On March 31, 2022 the International Sustainability Standards Board (ISSB), established at COP26 to develop a comprehensive global baseline of sustainability disclosures for the capital markets, launched a consultation on its first two proposed standards. One sets out general sustainability-related disclosure requirements and the other specifies climate-related disclosure requirements. Further details are here.
FRC: Preliminary thoughts on sustainability reporting (February 2022): On February 9, 2022 the FRC published its preliminary thoughts to the International Sustainability Standards Board (ISSB) on the prototypes published by the Technical Readiness Working Group in November 2021 to support the development of International Sustainability Standards. Further details are here.
FCA: Primary Market Bulletin No. 38 – New Technical Note on TCFD aligned climate-related disclosure requirements for listed companies (February 2022): On February 25, 2022 the Financial Conduct Authority (FCA) published Primary Bulletin No.38 which confirms that the FCA’s Knowledge Base (its base of technical guidance) has been updated by the addition of a new Technical Note on Task Force on Climate-related Financial Disclosures (TCFD) aligned climate-related financial disclosures for listed companies, TN/802.1. Further details are here.
BEIS: Mandatory climate-related financial disclosures by publicly quoted companies, large private companies and LLPs – Non-binding guidance (February 2022): On February 22, 2022 BEIS published non-binding guidance to help companies and limited liability partnerships (LLPs) understand how to meet new mandatory climate-related financial disclosure requirements under the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 and the Limited Liability Partnerships (Climate-related Financial Disclosure) Regulations 2022. These Regulations were made on January 17, 2022 and apply to reporting for financial years starting on or after April 6, 2022. Further details are here.
FRC: Good practice guidance for company meetings (July 2022): On July 21, 2022 the FRC published guidance, primarily for listed companies and shareholders, which sets out suggestions for good practice (in the form of “Principles” and relevant actions) that listed companies should consider adopting to enhance effective shareholder participation when planning and conducting annual general meetings (AGMs) and other general meetings . Further details are here.
BEIS: Restoring trust in audit and corporate governance – Government response to consultation (May 2022): On May 31, 2022 the Department for Business, Energy and Industrial Strategy (BEIS) published a document summarising responses to and plans for action following its consultation on the White Paper it published in March 2021 setting out wide-ranging reforms to the UK’s audit and corporate governance framework. Further details are here and our detailed briefing on the response document is here.
PIRC: Shareholder Voting Guidelines 2022 (March 2022): In March 2022, PIRC published their latest shareholder voting guidelines, setting out their views on issues such as board structure, remuneration policy and management of social and environmental issues. Further details are here.
FCA: Primary Market Bulletin No. 39 (March 2022): On March 23, 2022 the FCA published Primary Market Bulletin 39 (PMB 39) in which it announced the removal of the temporary measures introduced in 2020 allowing for delayed annual and interim financial reporting, as well as rescinding the temporary measures regarding working capital statements and general meetings. Further details are here.
Investment Association: Shareholder priorities and IVIS approach for 2022 (March 2022): On March 1, 2022 the Investment Association set out the issues that companies with year ends starting on or after December 31, 2021 will be monitored in respect of in their financial reporting. These are responding to and accounting for climate change, audit quality, diversity and stakeholder engagement. Further details are here.
BEIS: Corporate Transparency and Register Reform – White Paper (March 2022) On February 28, 2022 BEIS published a White Paper setting out the Government’s position (ahead of introducing legislation into Parliament) in relation to reforms to Companies House which are aimed at contributing to Government priorities in national security and anti-corruption, fraud and boosting enterprise. The reforms cover the transformation of Companies House, new powers for the Registrar of Companies, identity verification for directors and others, improved privacy protections, greater powers to share data and reforms to improve the quality of financial information on the register. Further details are here.
FRC: Wates Corporate Governance Principles for Large Private Companies – The Extent, Coverage and Quality of Corporate Governance Reporting (February 2022): On February 23, 2022 the FRC published the results of research into how large private companies within scope of the requirement in the Companies (Miscellaneous Reporting) Regulations 2018 (Regulations) to produce a corporate governance report are meeting that requirement by applying the Wates Corporate Governance Principles (Wates Principles) or an alternative corporate governance code or approach. Of those companies who have chosen to follow the Wates Principles, the research also considered the quality of their reporting. Further details are here.
PLSA: Stewardship and Voting Guidelines 2022 (February 2022): On February 23, 2022 the Pensions and Lifetime Savings Association published their latest Stewardship and Voting Guidelines to provide a framework for pension schemes trustees, and investors generally, to ensure that companies are held to account on key issues in the 2022 AGM season. Further details are here.
FCA: Handbook Notice No. 98 – Definition of UKSEF amended (April 2022): The FCA published Handbook Notice No. 98 on April 29, 2022 summarising recent changes to the FCA Handbook. These include a change to the version of the UKSEF 2022 taxonomy permitted for the tagging of annual financial reports under DTR 4.1. Further details are here.
FCA: Proposed changes to allow companies to use a more up to date electronic format for their annual financial reports – CP22/5 (March 2022): On March 25, 2022 the FCA published a Consultation Paper, CP 22/5, which proposes changes to allow companies to use a more up to date electronic format for their annual financial reports. The consultation applies to issuers in scope of DTR 4.1. Further detail are here.
LSE: Inside AIM - Coronavirus and update of financial reporting deadlines (March 2022): On March 23, 2022 London Stock Exchange plc issued an Inside AIM article updating previous temporary guidance for financial reporting deadlines required by the AIM Rules for Companies (AIM Rules) that were implemented in in light of the Coronavirus (COVID-19) situation. This Inside AIM advises that the temporary measures announced in March 2020 and June 2020 for both half-yearly reports (pursuant to AIM Rule 18) and annual audited accounts (pursuant to AIM Rule 19) will no longer be available for any annual financial periods and any half-year financial periods ending after June 28, 2022. Further details are here.
FCA: Primary Market Bulletin No. 39 (March 2022): On March 23, 2022 the Financial Conduct Authority (FCA) published Primary Market Bulletin 39 (PMB 39) in which it announced the removal of the temporary measures introduced in 2020 allowing for delayed annual and interim financial reporting, as well as rescinding the temporary measures regarding working capital statements and general meetings. Further details are here.
30% Club Investor Group UK: Reporting on Diversity - A guidance toolkit for companies by investors (May 2022): On May 24, 2022 the 30% Club Investor Group, UK (30% Club Investor Group) published a guidance toolkit for companies prepared by investors to (i) establish a shared understanding of what constitutes useful reporting on diversity to assist with investors’ decision-making processes and engagements; and (ii) help companies better understand what investors value most in disclosure on diversity and provide insights on how company reporting can be made more effective and comprehensive. The guidance is primarily aimed at FTSE 350 companies, but unlisted companies are invited to use it for guidance too. Further details are here.
FCA: Diversity and inclusion on company boards and executive management – Policy Statement 22/3 (April 2022): On April 20, 2022 the FCA published Policy Statement 22/3 which sets out its final rules requiring listed companies to report information and disclose against targets on the representation of women and ethnic minorities on their boards and executive management. This follows a consultation launched in July 2021 in CP21/24. Further details are here.
Parker Review Committee: Improving the Ethnic Diversity of UK Boards: An update report from the Parker Review (March 2022): On March 16, 2022 the Parker Review Committee published the results of its latest voluntary census on the ethnic diversity of FTSE 350 companies’ boards. The review was carried out jointly with BEIS. The Parker Review made a number of recommendations in 2017, including that FTSE 100 companies should have at least one director from a minority ethnic background by 2021 and FTSE 250 companies should have at least one director from a minority ethnic background by 2024. Further details are here.
BEIS: FTSE Women Leaders Review - Achieving gender balance (February 2022): On February 22, 2022 a new report by the Government-backed FTSE Women Leaders Review, which monitors women’s representation in 24,000 positions on FTSE 350 Boards and in leadership teams of the UK’s biggest companies, building on the success of the previous Hampton-Alexander and Davies Reviews, was published. This reports on progress to date and includes four new recommendations for FTSE 350 companies. Further details are here.
Prime Minister’s Office: Queen’s Speech 2022 (May 2022): The Queen’s Speech, delivered on May 10, 2022, set out the programme of legislation that the Government intend to pursue in the forthcoming parliamentary session. It included details of a Modern Slavery Bill. Further details are here.
FRC: Modern slavery reporting practices in the UK (April 2022): On April 25, 2022 the FRC published new research, in conjunction with the UK Anti-Slavery Commissioner and Lancaster University, which has identified significant shortcomings in the quality of companies’ modern slavery reporting. The research looked at a sample of 100 major companies’ (comprising FTSE 100, FTSE 250, and Small Caps) modern slavery statements and their strategic and governance reports. Overall, the research found reporting on modern slavery in both modern slavery statements and annual reports to be lacking the information needed for shareholders and wider stakeholders to make informed decisions. The FRC notes that the findings of the research are an opportunity for companies to present a more joined up approach to reporting and provide information on the effectiveness of their policies. Further details are here.
FRC: Thematic review – Judgements and Estimates (Update) (July 2022): On July 26, 2022 the FRC published an updated thematic review on disclosures about significant accounting judgements and sources of estimation uncertainty. An earlier review on this topic was published in November 2017 and, while the FRC has identified some improvement in the overall quality of judgement and estimate disclosures since the 2017 report, issues on this topic continue to arise which is why the FRC decided to produce this follow-up report. Further details are here.
FRC: Guidance on the Strategic Report (June 2022): On June 16, 2022 the FRC published an updated version of its Guidance on the Strategic Report (Guidance), last published in July 2018. The Guidance has been amended to incorporate the new climate-related financial disclosures set out in section 414CB(A1) Companies Act 2006, following changes in legislation made earlier in 2022, and a number of other amendments to maintain alignment with legislation. Further details are here.
BEIS: Restoring trust in audit and corporate governance – Government response to consultation (May 2022): On May 31, 2022 BEIS published a document summarising responses to and plans for action following its consultation on the White Paper it published in March 2021 setting out wide-ranging reforms to the UK’s audit and corporate governance framework. Further details are here and our detailed briefing on the response document is here.
FRC: Financial Reporting Council Thematic Review – Discount Rates (May 2022): On May 16, 2022 the FRC published a report which summarises the key findings in relation to discounting in financial reporting arising from both a thematic review conducted by the FRC and its routine monitoring of corporate reporting. Further details are here.
FRC: Supply chain disclosure – Lab Insight (April 2022): On April 29, 2022 the FRC’s Financial Reporting Lab published an insight document which sets out some questions and resources that may be useful for companies to consider in preparing their reporting on their supply chains. The FRC Lab notes that in light of the recent pandemic and other geopolitical and macroeconomic events, as well as the growing demand and regulation for sustainability reporting and its focus on enterprise value, investors consider that understanding the impact of supply chains is now more important than ever. Further details are here.
FRC: Preliminary thoughts on sustainability reporting (February 2022): On February 9, 2022 the FRC published its preliminary thoughts to the International Sustainability Standards Board (ISSB) on the prototypes published by the Technical Readiness Working Group in November 2021 to support the development of International Sustainability Standards. Further details are here.
FRC: The influence of the UK Stewardship Code 2020 on practice and reporting – Research study (July 2022): On July 5, 2022 the FRC published the results of independent research it commissioned so that it can begin to assess the impact of the 2020 Stewardship Code on stewardship practices. The research included a survey with asset managers and interviews with asset managers and asset owners (who had applied to become signatories to the Stewardship Code and were awaiting the outcome of their application) conducted between May and September 2021. Further details are here.
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