Publication
Horizon Scanning: Investigations and Enforcement
In this horizon scan, we focus on key developments affecting companies operating in the UK, including in light of the recent change in UK government.
Global | Publication | December 18, 2015
Welcome to Essential Corporate News, our weekly news service covering the latest developments in the UK corporate world.
On December 12, 2015 the Pensions and Lifetime Savings Association (PLSA), formerly known as the National Association of Pension Funds or NAPF, published a revised version of its Corporate Governance Policy and Voting Guidelines. These seek to reflect current market best practice as determined through consultation with PLSA members and the aim of the Guidelines is to assist members in promoting the long-term success of the companies they invest in and ensuring that the board and management of these companies are held accountable to shareholders. The Guidelines also aim to assist investors and proxy voting agents in their interpretation of the provisions of the UK Corporate Governance Code and in forming judgements on the resolutions presented to shareholders at a company’s AGM. The Guidelines note that while the UK Corporate Governance Code only applies on a mandatory basis to companies with a premium listing, its principles are just as relevant to smaller quoted companies as they are to larger ones and it refers to the QCA Corporate Governance Code for Small and Mid-sized Quoted Companies as a useful reference point for companies in this respect.
Key changes to the version of the Guidelines published in 2014 include the following:
(PLSA, Corporate Governance Policy and Voting Guidelines 2015/16, 12.12.15)
On December 15, 2015 the Financial Reporting Council (FRC) wrote to audit committee chairs in larger listed companies summarising key developments for 2015 annual reports. The letter highlights where companies might take steps to continue to improve their reporting.
Points covered in the letter include the following:
(FRC, Year-end advice to preparers – larger listed companies, 15.12.15)
On December 17, 2015 the Financial Reporting Council (FRC) published a report examining the steps companies have taken towards clear and concise reporting, whereby annual reports provide relevant and easily understandable information for investors. The report highlights emerging best practice in narrative reporting and considers developments in the reporting framework.
The report is in three sections as follows:
Clear and concise reporting
The report sets out steps that can be taken to help achieve clear and concise reporting, including starting the annual reporting process early, applying materiality, considering the audience for the annual report and engaging with the board early in the planning process. It points out that companies do not need to provide every disclosure set out in standards or regulations and that only material and relevant disclosures need to be included. It confirms that complementary information that is not required by law or regulation to be included in the annual report can be published separately and it sets out questions to consider when deciding whether information can be removed or moved from the annual report.
Impact of the strategic report
The FRC has collated the findings of reports produced by a number of organisations on the quality of UK corporate reporting and supplemented that with a detailed review of a sample of 2013/14 and 2014/15 strategic reports of FTSE 350 companies.
In terms of communication, it notes that many companies have improved how they communicate in their annual reports, particularly in their strategic reports, by making important information more accessible. Steps to help communication include the following:
The report also considers the placement of information and urges innovation with structure and presentation in the strategic report. The FRC has found that companies are generally striking a good balance in the proportions of summarised information and more detailed narrative explanation providing analysis and context. However, it believes companies can be more ambitious in their use of cross-referencing and an increased use of signposting to complementary information inside or outside the annual report should enable companies to streamline strategic reports further and communicate more clearly and succinctly.
In terms of the content of the strategic report, the FRC comments include the following:
In addition, in terms of materiality, the FRC believes there is scope for companies to go further in the application of materiality to certain areas of the strategic report, particularly in relation to disclosures of principal risks and KPIs.
Emerging developments
The FRC discusses a number of developments in the pipeline that will impact on corporate reporting in the future. These are:
(FRC, Clear & Concise: Developments in Narrative Reporting, 17.12.15)
On December 11, 2015 the Financial Reporting Council (FRC) published Exposure Draft 63 (FRED 63) proposing limited amendments to FRS 101, Reduced Disclosure Framework, which is an optional accounting standard intended to enable cost-efficient financial reporting within groups, particularly those applying EU-adopted IFRS in their consolidated financial statements. It requires an entity to apply EU-adopted IFRS subject to specified disclosure exemptions. The draft amendments to FRS 101 provide certain disclosure exemptions in relation to IFRS 15 “Revenue from Contracts with Customers” and clarify the order in which the notes to the financial statements are presented.
FRED 63 has arisen as a result of the annual review of FRS 101 which aims to ensure that it continues to be as cost-effective as IFRS on which it is based. Comments on the proposed amendments are requested by March 31, 2016.
(FRC, FRED 63 – Draft amendments to FRS 101 Reduced Disclosure Framework 2015/16 cycle, 11.12.15)
On December 17, 2015 the Small Business, Enterprise and Employment Act 2015 (Commencement No 3) Regulations 2015 (the Regulations) were published. The Regulations bring into force certain provisions of the Small Business, Enterprise and Employment Act 2015 (the Act).
Regulation 3 commences provisions for the purpose of exercising powers in the Companies (Audit, Investigations and Community Enterprise) Act 2004 and the Companies Act 2006 (CA 2006).
Regulation 4 commences on April 6, 2016 provisions that insert a new Part 21A and Schedules 1A and 1B to the CA 2006, which bring into force the requirement for companies to keep a register of people who have significant control over the company, together with the Secretary of State's obligation to review those provisions. This is subject to Regulation 5 which specifies that sections 790M(9)(c) and 790W to 790ZE of Part 21A, together with paragraphs 4, 5 and 7 of Part 2 of Schedule 3, will commence on June 30, 2016.
On December 14, 2015 the Financial Reporting Council (FRC) announced that it will introduce public tiering of signatories to the UK Stewardship Code in July 2016 to improve reporting against the principles of the Stewardship Code and assist investors. The FRC believes that improved reporting will help asset owners judge how well their fund manager is delivering on their commitments under the Stewardship Code, help those who value engagement to choose the right manager and, consequently, should provide a market incentive in support of engagement.
To promote commitment to stewardship, the FRC will assess signatories’ reporting against the Stewardship Code and make public its assessment. Signatories will be assessed as being:
The FRC notes that, before making a public assessment, it will contact firms for feedback to allow time for improvement.
(FRC, FRC promotes improved reporting by signatories to the Stewardship Code, 76/15, 14.12.15)
Publication
In this horizon scan, we focus on key developments affecting companies operating in the UK, including in light of the recent change in UK government.
Publication
On 3 September 2024, the ECJ delivered its judgment in Illumina’s appeal against the General Court’s (GC) judgment confirming the European Commission’s (EC) powers to review concentrations under the EU Merger Regulation (EUMR) in circumstances where no Member State has jurisdiction under national law.
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