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.
Many companies will be in the process of preparing their latest annual report and accounts. A number of publications produced during the period covered by this checklist, particularly by the Financial Reporting Council (FRC), will be helpful in the drafting of narrative sections of that annual report. Examples include the FRC’s Lab reports on net zero disclosures and digital security risk disclosures. In addition, the FRC’s recent publication, “What makes a good Annual Report and Accounts” sets out corporate reporting principles and effective communication characteristics (with helpful examples) that the FRC believes are associated with a high quality annual report and so that is a publication worth considering.
In the context of the 2023 AGM season more generally, companies should be aware of updated investor guidelines on issues such as board diversity, climate accountability and disapplication of pre-emption right authorities. In relation to the latter, companies to which the Pre-Emption Group’s guidelines on the disapplication of pre-emption rights apply, will need to decide whether to take advantage of the flexibility offered by the updated Statement of Principles published in November 2022. These updated guidelines are supported by institutional investors.
FRC: Areas of supervisory focus for 2023/24 announced (December 2022): In December 2022, the Financial Reporting Council (FRC) announced its areas of supervisory focus for 2023/24, including priority sectors, for corporate reporting reviews and audit quality inspections. Further details are here.
FRC: Draft 3 - Year Plan 2023-2026 (December 2022): The FRC has published its 2023-2026 draft 3-Year Plan which sets out its priorities for the next three years and the resources it will need to achieve them. Further details are here.
FRC: ARGA funding consultation – Feedback Statement Draft (December 2022): The FRC has published a Feedback Statement summarising stakeholders’ views on the proposed funding arrangements for the new Audit, Reporting and Governance Authority (ARGA) as set out in a consultation paper published by the FRC in July 2022. The Feedback Statement also sets out the FRC’s responses, and notes those issues on which there will be further consultation. Further details are here.
FRC: Firm level Audit Quality Indicators Consultation – Feedback Statement (December 2022): The FRC has published a Feedback Statement which provides an analysis and explanation of the responses received to a consultation the FRC launched in June 2022 on the public reporting of firm-level Audit Quality Indicators (AQIs). It explains how the FRC has considered and addressed the feedback and how firms will report on the AQIs. Further details are here.
FRC: New support measures for smaller audit firms being introduced as their market share grows (December 2022): The FRC has published an Audit Quality Inspection and Supervision Report into Tier 2 and Tier 3 audit firms, and at the same time announced new supervision measures to support smaller audit firms seeking to grow their share of the audit market without compromising audit quality. Further details are here.
FRC: Competition in the audit market – Policy paper (December 2022): The FRC has published a policy paper which gives an overview of the FRC’s approach to competition in the audit market. It also covers recent developments with competition in the audit market and the FRC’s current competition policy work. Further details are here.
FRC: What makes a good environment for auditor scepticism and challenge (November 2022): In November 2022, the FRC published a paper setting out the key attributes of a high-quality audit environment that enable professional scepticism and challenge in an audit, linking to the environmental factors outlined in the Professional Judgement Guidance published by the FRC in June 2022. The paper describes what good looks like and provides examples of good practice in each area, identified from the FRC’s supervision work. Further details are here.
FRC: Revised Application Guidance to FRS 100 published - Amendments to FRS 100 Application of Financial Reporting Requirements: The Interpretation of Equivalence (November 2022): In November 2022, the FRC issued ‘Amendments to FRS 100 Application of Financial Reporting Requirements – The Interpretation of Equivalence’, which revise the Application Guidance to FRS 100 to reflect changes to company law and decisions on equivalence following the UK’s exit from the European Union. Further details are here.
FRC: Auditor reporting – A review of current practice (August 2022): In August 2022, the FRC published the results of research into the current state of auditor reporting within the UK. A sample of 396 auditor’s reports for companies in the FTSE 350, as well as large AIM companies, was used to explore their form and content. The findings have been summarised as a series of six ‘snapshots’ to start a dialogue with stakeholders on how auditor’s reports can be further improved. Further details are here.
FRC: Public Interest Entity Auditor Registration Regulations (August 2022): In August 2022, the FRC published the 'Financial Reporting Council Public Interest Entity ('PIE') Auditor Registration Regulations'. These Regulations provide for a register of firms and individuals approved to undertake statutory audit work for PIEs, and on and from the date that they come into force, no firm or individual may undertake statutory audit work for PIEs unless that firm or individual is registered on the PIE Auditor Register. Further details are here.
FRC: Consultation on Audit Committee Standard (November 2022): In November 2022, the FRC launched a consultation on its draft proposal for a minimum standard for audit committees (Standard) intended to increase performance across audit committees in the FTSE 350, by setting minimum standards for both the appointment and oversight of auditors. The consultation will close on February 8, 2023 and the intention is for the Standard to be available to audit committees on a voluntary basis by the end of 2023 and to follow it on a comply or explain basis, ahead of the planned legislation that will make it mandatory. Further details are here.
FRC: Navigating barriers to senior leadership for people from minority ethnic groups in FTSE 100 and FTSE 250 companies (September 2022): In September 2022, the FRC published a report based on the results of research that looked at the challenges and opportunities that minority ethnic individuals might experience in progressing to the boards of FTSE 100 and FTSE 250 companies. The report shows that, while there are still significant challenges to be addressed, the need for change has been taken seriously across the spectrum, including senior managers, executive leaders, board chairs and executive search consultants. Further details are here.
FRC: ESG Statement of Intent: What’s Next (January 2023): The FRC has published an update to the Statement of Intent on Environmental, Social and Governance (ESG) which it first published in 2021. That identified underlying issues with the production, audit and assurance, distribution, consumption, supervision and regulation of ESG information. Further details are here.
BEIS: Mission Zero – Independent review of Net Zero – Final Report (January 2023): In January, the Department for Business, Energy and Industrial Strategy (BEIS) published the Final Report of the Net Zero Review Team chaired by Chris Skidmore. The Review Team was established in 2022 to review the Government’s approach to net zero to better understand the impact of the different ways to deliver the net zero pathway on the UK public and economy and maximise economic opportunities of the transition. This follows publication, in 2021, of the Government’s Net Zero Strategy, setting out a pathway to reaching net zero greenhouse gas emissions by 2050. Further details are here.
FCA: Primary Market Bulletin No 42 (December 2022): In December 2022, the Financial Conduct Authority (FCA) published Primary Market Bulletin No 42 which covers a variety of matters. These include a reminder of the FCA’s guidance and expectations in relation to climate-related financial disclosures. Further details are here.
Glass Lewis: 2023 ESG Initiatives – Policy Guidelines (November 2022): Glass Lewis has published its updated ESG Initiatives Policy Guidelines for 2023 (Guidelines). The Guidelines include revisions in relation to a number of areas, including board accountability for climate-related issues, disclosure of shareholder proponents, racial equity audits and retirement benefits and severance. Further details are here.
The Transition Plan Taskforce Disclosure Framework and Implementation Guidance: Consultation (November 2022): The UK Transition Plan Taskforce (TPT) has launched the first draft of its Disclosure Framework (Draft Framework) and accompanying Implementation Guidance for consultation. The consultation will close on February 28, 2023 with the final version of both the Disclosure Framework and Implementation Guidance to be published during Summer 2023. The aim of the Draft Framework is to assist entities to disclose credible, useful and consistent transition plans. It builds on existing recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) and guidance by providing specificity and granularity on what UK transition plans should include and where they should be reported. Further details are here.
Energy & Climate Intelligence Unit: Everybody’s business - The net zero blind spot (October 2022): In October 2022, the Energy and Climate Intelligence Unit, a non-profit organisation that supports informed debate on energy and climate change issues in the UK, published a report looking at how the pledges and plans for net zero set out by the world’s biggest private companies compare to their publicly-listed counterparts. The comparison includes both the existence and robustness of a net zero target, whether the company has set interim targets, published a plan outlining how it will reach net zero, is committed to report its progress annually and is clear about the scopes of emissions contained in its target, and planned use of offsets. Further details are here.
TCFD: 2022 Status Report (October 2022): In October 2022, the TCFD published its 2022 Status Report. 2022 marks five years since the TCFD published its final recommendations in 2017, and the 2022 Status Report assesses developments and progress during that time. Further details are here.
FRC: FRC Lab Report – Net Zero Disclosures (October 2022): The FRC Lab has published a report which explores investor expectations and highlights information that would provide better and more useful disclosures on greenhouse gas (GHG) emission reduction commitments, covering many of the current regulatory requirements for net zero reporting. With the report, the FRC Lab has published a separate detailed example bank providing a number of practical examples of current good practice to help companies improve their disclosures in this area. Further details are here.
FRC: FRC Lab Report - Improving ESG data production (August 2022): In August 2022, the FRC Lab published a report on the production of environmental, social and governance (ESG) data with the aim of helping companies consider how to collect and use ESG data more effectively to support better decision-making. Further details are here.
ISS: UK Proxy Voting Guidelines – Benchmark policy changes for 2023 (December 2022): ISS has published its policy updates setting out changes to its UK Proxy Voting Guidelines. These changes will be effective for company meetings held on or after February 1, 2023. Key changes to the 2022 UK Proxy Voting Guidelines are in relation to board diversity (gender and ethnicity), climate accountability, frequency of audit committee meetings, aspects of remuneration reports, disapplication of pre-emption rights authorities and investment companies. Further details are here.
Glass Lewis: 2023 UK Proxy Voting Guidelines (November 2022): In November 2022, Glass Lewis published its updated UK Proxy Voting Guidelines for 2023 (Guidelines). The Guidelines include revisions and clarifications in relation to a number of areas, including external commitments, director accountability for climate-related issues, general authority to issue shares without pre-emptive rights, specific authority to issue shares, employee representatives, cyber risk oversight, pensions, combined incentive plans, linking executive pay to environmental and social criteria and remuneration committee discretion. Further details are here.
FRC: PEG issues Statement of Principles following Secondary Capital Raising Review (November 2022): In November 2022, the Pre-emption Group (PEG) published an updated Statement of Principles and template resolutions. These replace the previous version of the PEG Principles and associated template resolutions and reflect recommendations made in the report published by the UK Secondary Capital Raising Review in July 2022 (Report). In its press release PEG notes that it is committed to implementing the Report’s recommendations in full, is working to establish the governance and membership proposed and will make a further announcement when this is complete. For more details, please see our briefing New PEG pre-emption guidance: Consequences for listed issuers.
OECD: Public consultation on draft revisions to the G20/OECD Principles of Corporate Governance (September 2022): In September 2022, the OECD Corporate Governance Committee launched a public consultation on revisions to the G20/OECD Principles of Corporate Governance. The overall objective of the review is to update the Principles in light of recent evolutions in capital markets and corporate governance policies and practices. Further details are here.
BEIS: Reporting on Payment Practices and Performance Regulations 2017 – Government Consultation (January 2023): BEIS has published a Consultation Paper following a statutory review of the Reporting on Payment Practices and Performance Regulations 2017 and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 (Regulations). It asks whether the Regulations should be extended beyond their current expiry date of April 6, 2024 and also seeks views on other potential amendments and improvements to the Regulations. Further details are here.
FCA: Streamlining our transparency rules on structured digital reporting of annual financial statements by companies – CP 23/2 (January 2023): In January 2023, the FCA published Consultation Paper CP23/2 which sets out proposals to simplify the FCA’s current rules that require in-scope companies with securities admitted to UK regulated markets to prepare, publish and file with the FCA their annual financial report in an electronic format, and for the financial statement within it to be in a ‘structured digital format’. CP23/2 includes in Appendices the proposed amendments to the FCA’s Disclosure Guidance and Transparency Rules and a new draft Technical Note to provide guidance for in-scope companies. Further details are here.
FRC: What makes a good Annual Report and Accounts (December 2022): In December 2022, the FRC published a document setting out the FRC’s view on the attributes of a good Annual Report and Accounts (ARA) from its perspective as an Improvement Regulator. The FRC sees a good ARA as the cornerstone of corporate reporting and it should provide investors and other stakeholders with clear and relevant information on the company’s performance and prospects to help them make informed investment decisions and to promote effective stewardship. In setting out the attributes of a good ARA, the FRC identifies corporate reporting principles and effective communication characteristics generally associated with a high quality ARA. Where possible, in the document, the FRC provides published examples to bring the underlying principles to life. Further details are here.
IOSCO: Statement on Financial Reporting and Disclosure during Economic Uncertainty (November 2022): In November 2022, the International Organisation of Securities Commissions (IOSCO) published a statement on financial reporting and disclosure during economic uncertainty, emphasising issuers’ need for fair, transparent and timely disclosure about impacts of economic uncertainty. The statement encourages issuers, external auditors, as well as audit committees (or those charged with governance) to be particularly vigilant in times of economic uncertainty in their consideration of how risks and uncertainties that could affect or have affected an issuer’s operations, financial condition, cash flows and prospects can be transparently communicated to investors. Further details are here.
FRC: Review of Corporate Governance Reporting 2022 (November 2022): In November 2022, the FRC published its annual review of how companies have reported on their governance in line with the Principles and Provisions of the UK Corporate Governance Code. The FRC assessed 100 FTSE 350 and Small Cap companies. Further details are here.
FRC: Annual Review of Corporate Reporting 2021/22 (October 2022): In October 2022, the FRC published its latest Annual Review of Corporate Reporting, which describes the activity and findings of its Corporate Reporting Review function for the 12-months to March 31, 2022. The report is primarily aimed at preparers and auditors, investors and other users of corporate reports and accounts. It is supplemented by a Corporate Reporting Highlights document and a Key Matters for 2022/23 Annual Reports and Accounts, which summarises key considerations for the forthcoming reporting season. Further details are here.
FRC: Thematic Review - Business Combinations (September 2022): In September 2022 the FRC published the results of accounting and reporting for business combinations. The review looks at annual reports of a number of companies which have recently completed a business combination, and draws out some of the features of better reporting and disclosures, at the same time highlighting areas for improvement. Further details are here.
FRC: Thematic Review – Deferred Tax Assets (September 2022): In September 2022, the FRC published the results of a Thematic Review it has conducted into deferred tax asset accounting and disclosure. This updates the findings on tax disclosures discussed in the FRC’s October 2016 Corporate Reporting Thematic Review: Tax disclosures. Further details are here.
FRC: Thematic Review – Earnings per Share (IAS 33) (September 2022): In September 2022, the FRC published the results of a Thematic Review it has conducted into the reporting of earnings per share (EPS) in companies’ financial statements. The report highlights some of the more common errors and, using case studies and examples, it aims to explain the issues involved and show how companies can improve the reliability of their EPS by complying with the detailed requirements of IAS 33, and providing more helpful disclosures. Further details are here.
FRC: FRC Lab Report - Structured digital reporting – Improving quality and usability (September 2022): In September 2022, the FRC Lab published the results of analysis it has conducted into structured digital reporting which is mandatory for reporting periods starting on or after January 1, 2021 for companies admitted to trading on UK regulated markets. Such companies are required to produce their annual financial report in a structured digital format (‘structured reports’). Further details are here.
FRC: Digital Security Risk Disclosure – FRC Lab Report (August 2022): In August 2022, the FRC Lab published a report on digital security risk disclosure to help companies improve the disclosure of digital security strategies, risks and governance. Further details are here.
FCA: Remuneration – Ratio between fixed and variable components of total remuneration (bonus cap) – Consultation (December 2022): In December 2022, the Financial Conduct Authority (FCA) published a consultation paper, CP 22/28, at the same time as the Prudential Regulation Authority (PRA) published it as CP15/22. This is a joint consultation on proposed changes to the current requirements concerning the ratio between fixed and variable components of total remuneration (the ‘bonus cap’). Further details are here.
The Investment Association: Principles of Remuneration 2023 and Letter to Remuneration Committee Chairs (November 2022): In November 2022, the Investment Association published its annual Principles of Remuneration (the Principles) setting out its members' expectations in relation to executive pay for 2023. While not making any significant changes to the Principles in relation to executive directors' pay, in relation to non-executive directors (NEDs), the Principles have been updated to reflect investor support for NEDs to be paid fees that reflect the time commitment, complexity and skillset required and the expectations of the board and shareholders. At the same time, the Investment Association also published a letter to the remuneration committee chairs of FTSE 350 companies which highlights current issues of concern for investors that should be taken into consideration by committees when deciding on 2022 outcomes and setting their remuneration approach for 2023. Further details are here.
FRC: Review of Stewardship Reporting 2022 (November 2022): In November 2022, the FRC published a report providing an overview of the stewardship reporting against the 2020 UK Stewardship Code assessed in the Spring 2022 period and explaining how the FRC’s expectations for reporting will evolve for the 2023 assessment year. In the report, the FRC also provides guidance for reporting on engagement and exercising rights and responsibilities and gives guidance on its expectations of reporting by asset owners and those investing through a third-party manager. Further details are here.