UK corporate governance and narrative reporting : Key developments checklist

Key developments

One of the key developments since August 2023 is the withdrawal of the draft Statutory Instrument that set out significant amendments to current reporting requirements for many companies. Another is the publication of the 2024 UK Corporate Governance Code. These two developments are linked as the withdrawal of the Statutory Instrument meant that the Financial Reporting Council (FRC) had to rethink (and itself withdraw) a significant number of its proposed amendments to the 2018 UK Corporate Governance Code which it had consulted on. 

Those amendments had been proposed on the basis that there would be legislation introducing significant changes to the regulation of audit, corporate reporting and governance. When it became clear that legislation would not be in the 2023 King’s Speech, the FRC flagged in a policy statement in November 2023 that it would not proceed with a number of its proposals and the updated UK Corporate Governance Code (all of which, apart from one Provision, will apply for accounting periods beginning on or after 1 January 2025) was published in January 2024. Further details are provided in this Checklist. 

So far as large private companies, including UK subsidiaries of listed companies, are concerned, the FRC’s Thematic Review into reporting by such companies will be of interest. The report sets out areas of better practice and opportunities for improvement, as well as examples of good practice, and key expectations of large private companies are set out at the end of the report. These will be helpful in preparing annual reports and accounts going forward.

Audit

FRC: Audit market and competition developments – Snapshot (December 2023): On 14 December 2023, the FRC published a short report which sets out recent developments in the audit market and its work on competition over the last year to help inform and support the FRC’s ongoing engagement with stakeholders. Further details are here.

FRC: Consultation on strengthening auditor reporting requirements of breaches of laws and regulations - International Standard on Auditing (UK) 250 (October 2023): On 18 October 2023, the FRC launched a consultation aimed at strengthening auditor requirements to detect and report material misstatements from non-compliance with laws and regulations and to clarify instances when auditors should report such breaches, and other significant matters, to the relevant regulators. The purpose of this is to enhance the useability and informativeness of the audit and provide greater assurance to users of financial statements that potential material misstatements have been properly assessed by the auditor.  Further details are here.

Climate-related reporting

Transition Plan Taskforce: Sector specific guidance published for consultation (November 2023) and Disclosure Framework launched (October 2023): On 13 November 2023, the Transition Plan Taskforce (TPT) launched a consultation on its sector-specific guidance for preparers and users of climate transition plans. This follows publication of its Disclosure Framework for transition plans in October 2023. Transition plans are seen as a critical component of a firm’s business strategy, helping to explain to their customers, shareholders and investors how they will adapt and grow as the global economy transitions to net zero. The Disclosure Framework provides a set of good practice recommendations to help companies make high quality, consistent and comparable transition plan disclosures. Further details are here. For more information on the subsequent sector specific guidance see here. 

DESNZ: Scope 3 emissions in the UK reporting landscape – Call for Evidence (October 2023): On 19 October 2023 the Department for Energy Security and Net Zero (DESN) launched a Call for Evidence to gather feedback on the benefits, costs, and practicalities of Scope 3 greenhouse gas (GHG) emissions reporting in the UK, including links to the existing Streamlined Energy and Carbon Reporting (SECR) framework.  Further details are here.

UKEB: Reports following Climate-related Matters Research Project (September 2023): On 15 September 2023 the UK Endorsements Board (UKEB) published two reports arising from its Climate-related Matters Research Project. The evidence gathered for these reports will help the UKEB obtain insight into UK companies’ existing experience of reporting on climate-related matters and the connectivity between sustainability reporting and financial reporting in this respect. Further details are here.

Corporate governance

FRC: Corporate Governance Code 2024 Guidance published (January 2024): On 29 January 2024, the FRC published guidance to accompany the updated UK Corporate Governance Code (2024 Code) which it published on 22 January 2024. The purpose of the Corporate Governance Code Guidance (Guidance) is to provide advice, further details and best practice examples to assist those using the 2024 Code, which includes links to relevant sections in the Guidance. Further details are here and here.

FRC: Revised UK Corporate Governance Code 2024 published (January 2024): On 22 January 2024, the FRC published an updated UK Corporate Governance Code (2024 Code). This follows publication of  a consultation paper (Consultation) in May 2023 which proposed revisions to the 2018 UK Corporate Governance Code (2018 Code), and a subsequent Policy Statement published by the FRC in November 2023 which gave an indication of the revisions to be made in the 2024 Code. Further details are here and here.

CGI: Model terms of reference for Sustainability or ESG Board Committee published (January 2024): On 31 January 2024, the Chartered Governance Institute (CGI) published a guidance note which includes model terms of reference for a Sustainability or ESG committee that boards may decide to establish. Such a board committee is not a requirement of the UK Corporate Governance Code but, as the CGI notes, more such committees are being established. Further details are here. 

CMIT: Open letter relating to corporate governance reform (November 2023): On 22 November 2023, the Capital Markets Industry Taskforce (CMIT) published an open letter concerning the UK’s approach to corporate governance following the Autumn Statement 2023. This was published by HM Treasury, with other documents, alongside the Autumn Statement. Further details are here.

FRC: Review of Corporate Governance Reporting (November 2023): On 16 November 2023, the FRC published their latest annual review of the reporting of 100 premium listed companies who are required under the Listing Rules to follow the UK Corporate Governance Code. The aim of the review is to give an overview of the reporting that the FRC has assessed, highlight good practice, trends over time, and explain where practices and reporting fall short, and need improvement. Further details are here.

QCA Corporate Governance Code – Updated (November 2023): The Quoted Companies Alliance (QCA) published an updated version of its Corporate Governance Code (QCA Code 2023) on 13 November 2023. The previous version was published in 2018.The QCA Code 2023 applies to financial years beginning on or after 1 April 2024, so the first disclosures under it will appear in 2025. There will be a 12-month transitional period so that companies applying the QCA Code 2023 have time to focus on their explanations as to their application of the principles in it while they become accustomed to the new reporting requirements.  Further details are here.

FRC: Policy update statement concerning UK Corporate Governance Code (November 2023): On 7 November 2023, the Financial Reporting Council (FRC) published a policy update on its recent consultation with stakeholders on certain revisions to the UK Corporate Governance Code.. The policy update was published in light of the fact that the Government’s previously announced plan for primary legislation to modernise the regulation of audit, corporate reporting and governance has not been included in the King’s Speech 2023.  Further details are here.

CGI: Boards need to step up governance approach to prepare for AI (October 2023): On 30 October 2023, the Corporate Governance Institute (CGI) published a press release urging company boards to start preparing for the challenges resulting from artificial intelligence (AI) developments. This followed the announcement of the setting up of a UK AI Safety Institute and other AI developments.  Further details are here.

Cyber

DSIT: Draft Cyber Governance Code of Practice – Call for views (January 2024): On 23 January 2024, the Department for Science, Innovation and Technology (DSIT) published a draft Cyber Governance Code of Practice (Cyber Code) to help directors and others in organisations of all sizes shore up their organisation’s defences from cyber threats. Views on the Cyber Code are being sought.  Further details are here.

Diversity

FCA and PRA: Consultation papers on diversity and inclusion in the financial sector published (September 2023): On 25 September 2023, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) published consultations setting out their proposals to introduce a new regulatory framework on diversity and inclusion (D&I) in the financial sector. The FCA’s consultation paper, CP23/20, is on D&I in the financial sector – ‘working together to drive change’, and the PRA’s consultation, CP18/23, is on D&I in PRA-regulated firms.  Further details are here.

Investor guidelines

ISS: UK Benchmark Proxy Voting Guidelines for 2024 (December 2023): On 19 December 2023, ISS announced updates to its 2024 benchmark proxy voting policies. The updated policies for the UK will be applied for shareholder meetings taking place on or after 1 February 2024.  Further details are here.

Glass Lewis: 2024 Benchmark Policy Guidelines (November 2023): On 16 November 2023, Glass Lewis published its updated UK Voting Policy Guidelines which will apply to shareholder meetings held after 1 January 2024.  Further details are here.

Narrative reporting

FRC: Reporting by the UK’s largest private companies – Thematic Review (February 2024): On 1 February 2024, the FRC published the results of a thematic review into the annual report and accounts of 20 UK private companies with revenues ranging from £1.5 billion up to £24 billion, employing between 1,000 and 145,000 people. The companies reviewed come from different sectors and comprised parent companies of privately owned groups which prepare consolidated accounts, subsidiary companies of overseas entities (being a mix of those that prepare an intermediate level consolidation and those that present only individual accounts) and subsidiaries of UK-listed companies which prepare individual accounts under FRS 101. Further details are here.

TNFD: Announcement that 320 organisations to start TNFD nature-related corporate reporting (January 2024) and TNFD Recommendations (September 2023): On 16 January 2024, the Taskforce on Nature-related Financial Disclosures (TNFD announced that 320 organisations from over 46 countries have committed to start making nature-related disclosures based on the TNFD Recommendations published in September 2023. The final Recommendations for nature-related risk management and disclosure provide companies and financial institutions of all sizes with a risk management and disclosure framework to identify, assess, manage and, where appropriate, disclose nature-related issues.  Further details are here. Further details of the Announcement are here.  

DBT: Draft Reporting on Payment Practices and Performance (Amendment) Regulations 2024 (January 2024) and Government response to consultation (November 2023): On 10 January 2024, the draft Reporting on Payment Practices and Performance (Amendment) Regulations were laid before Parliament (2024 Regulations), together with an accompanying draft Explanatory Memorandum. The 2024 Regulations amend the Reporting on Payment Practices and Performance Regulations 2017 (Principal Regulations) and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 (the LLP Regulations) and follow a consultation on the Principal Regulations launched in January 2023. On 22 November 2023, the Department for Business and Trade published the UK government’s response to the consultation which raised certain questions in relation to the Principle Regulations  and the LLP Regulations. Further details of that response are here. Further details about the 2024 Regulations are here.

FRC: Structured digital reporting – 2023 insights (December 2023): On 7 December 2023, the FRC’s Lab published a report on structured digital reporting, setting out some areas of focus for companies and suggestions to optimise reporting to meet the needs of investors and other users.  Further details are here.

FRC: Areas of supervisory focus for 2024/25 announced (December 2023): On 6 December 2023, the FRC announced its areas of supervisory focus for 2024/25, including priority sectors, for corporate reporting reviews and audit quality inspections.  Further details are here.

FRC: “Materiality mindset” for better corporate reporting (October 2023): On 30 October 2023, the Financial Reporting Council (FRC) published a report looking at how companies can improve their corporate reporting by taking a more focused, strategic approach to assessing materiality. Further details are here.

DBT: Draft reporting regulations withdrawn in latest move to cut red tape for businesses October 2023): On 16 October 2023 the Department for Business and Trade (DBT) announced that the draft Companies (Strategic Report and Directors’ Report) (Amendment) Regulations 2023, which were laid in Parliament on 19 July 2023, have been withdrawn. Further details are here.

FRC: Annual Review of Corporate Reporting 2022/23 (October 2023): On 5 October 2023, the Financial Reporting Council (FRC) published its Annual Review of Corporate Reporting, which describes the activity and findings of its Corporate Reporting Review function for the 12 months to 31 March 2023.  Its aim is to help companies improve their corporate reporting by highlighting key improvement areas and matters on which companies should focus in the coming year, with a particular focus on those areas where the FRC has challenged companies most frequently, or where the requirements are complex or changing. Further details are here.

DBT: UK Sustainability Disclosure Standards – Guidance (August 2023): On 2 August 2023 the Department for Business and Trade (DBT) published information on a webpage about the UK Government’s framework to create UK Sustainability Disclosure Standards (UK SDS).  Further details are here.

ISSB: International Standard on Sustainability Assurance 5000 (August 2023): On 2 August 2023 the International Auditing and Assurance Standards Board (IAASB) issued its proposed International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements, for consultation.  Further details are here.