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Essential Corporate News – Week ending December 22, 2017

Publication December 22, 2017


Welcome to Essential Corporate News, our weekly news service covering the latest developments in the UK corporate world.

FRC: Guidance for auditors in relation to preliminary announcements made in accordance with UK Listing Rules

On December 15, 2017 the FRC published its revised guidance, in the form of a Bulletin, for auditors when agreeing to the publication of preliminary announcements. The aim of the Bulletin is to provide investors with greater transparency about the status of the information included within preliminary announcements.

The Bulletin notes that while Listing Rule 9.7A.1R(2) requires listed companies to agree the preliminary announcement with their auditor prior to its publication, the Listing Rules do not indicate what form the agreement with the auditor should take, or the extent of work expected of the auditor before the auditor gives its agreement. As a result, the Bulletin provides guidance on the procedures that would normally be carried out by the auditor and on communicating the outcome of such procedures to the directors.

The Bulletin reflects feedback received from stakeholders and follows a consultation conducted earlier in the year. It also reflects:

  • changes in the UK Listing Rules since 2008;

  • changes to International Standards on Auditing (ISAs) (UK);

  • new guidance from the European Securities and Markets Authority (ESMA) about alternative performance measures; and

  • changes to the UK Corporate Governance Code and the principle that the board should present a fair, balanced and understandable assessment of the company’s position and prospects.

The Bulletin includes current guidance on the use of alternative performance measures, guidance on a new voluntary report, prepared by the auditor, which sets out the status of the financial statement audit and the procedures carried out by the auditor to agree to publication of any preliminary announcement, as well as illustrative example terms of engagement and an illustrative auditor’s report.

(FRC, Bulletin: Audit and Assurance, 15.12.17)

FRC: Audit Committee Reporting – Project report

On December 18, 2017 the FRC’s Audit and Assurance (A&A) Lab published its first project report on audit committee reporting. The project is being covered in two phases and this report completes Phase 1 which explored how investors’ confidence in an audit is enhanced by external reporting by audit committees in the annual report. Phase 2 will look at auditors’ reports to audit committees (which will be reported on during the first half of 2018).

The project focuses on those aspects of audit committee reporting that participants in the project say it would be most helpful to improve and the report includes “best practice” examples of reporting. It also covers questions to assist audit committee chairs and investors, the role of audit committees, appointment and tendering, independence and objectivity and effectiveness in the context of the external auditor, reporting on significant issues, internal control, risk management systems and internal audit.  

The report notes that investors would welcome more specific reporting on:

  • upcoming and recent audit tenders, and the approach to audit quality and independence;
  • the justification of non-audit services;
  • the rationale for financial reporting judgements, and the audit committee’s responsibility for internal control and risk management; and
  • the outcome of the audit committee’s own effectiveness reviews.

(FRC, Audit Committee Reporting, 18.12.17)

Investment Association: Public Register launched

On December 19, 2017 the Investment Association launched its Public Register of listed companies which have had significant shareholder rebellions during their AGMs. The Public Register aims to increase transparency, accountability and scrutiny of listed companies by shareholders, media and the wider public.

The Public Register incorporates all FTSE All-Share companies that received 20 per cent or more votes against any resolution during their AGM in 2017. It also includes those companies that withdrew a resolution prior to their AGM. It is hoped that the Public Register will encourage these companies to respond to the concerns of their investors as it will highlight their public statements. So far, almost one third (31 per cent) of companies named on the Public Register have provided a public response explaining how they are addressing their shareholders’ concerns.

(Investment Association, Public Register, 19.12.17)

ICSA: Challenges to effective board reporting

On December 19, 2017 the Institute of Chartered Secretaries and Administrators (ICSA) Governance Institute and Board Intelligence published a summary of their research into how board reporting (the preparation of reports and other papers discussed at board meetings) operates in organisations. They surveyed 80 governance professionals representing organisations of all sizes and sectors with the aim of identifying the main challenges to effective board reporting so that organisations can be helped to address these challenges.

The main findings from the research are as follows:

  • Board packs are too long: 74 per cent of respondents believe that their board packs are currently too long and this rises to over 80 per cent from respondents of larger organisations (over £100 million turnover).
  • Board packs are very time-consuming to prepare: 78 per cent of total respondents felt that board packs were too time-consuming to prepare. In particular, all respondents from smaller organisations (those with turnovers less than £10 million) found them too time consuming.
  • Getting the focus and balance of board packs right is a challenge: 68 per cent of respondents believe that their board packs are too focused on operational rather than strategic issues; 56 per cent believe that they are focused too heavily on internal rather than external developments; and 59 per cent think that board packs are not sufficiently forward-looking enough. The figures rise when considering smaller organisations only.
  • The process of preparing board packs can be improved: respondents were given the chance to identify other challenges to effective board reporting. 30 per cent of respondents did so. Of those who took part, 40 per cent complained about receiving papers after the deadline. Other issues identified included the lack of standardised reporting formats and managing the revision and collation of the various reports.

Next steps

Board Intelligence and ICSA intend to produce three tools to help organisations with the preparation and presentation of their board reporting:

  • a ‘cost calculator’ which will enable organisations to quantify how much time and money they spend on producing their board packs - this will become available in the first quarter of 2018:
  • a self-assessment tool to enable organisations to assess the length and balance of their board packs and identify ways in which they might be made more user-friendly and better focused – this will be published in July 2018; and
  • guidance to help company secretaries and governance professionals in addressing some of the challenges identified by the research - this will be published in July 2018.

(ICSA, Challenges to effective board reporting, 19.12.17)

Law Commission: Clarity on electronic signatures

On December 14, 2017 the Law Commission published its 13th Programme of Law Reform which includes a project looking at the use of electronic signatures.

The Law Commission notes that there is no case law or legislation setting out explicitly that documents executed with an electronic signature satisfy statutory requirements for certain documents to be “in writing” or signed under hand, and states that this is preventing businesses moving to fully electronic systems. As a result, the Law Commission is looking to clarify the uncertainty surrounding electronic signatures so that businesses can use such systems with confidence and potentially save consumers time and money.

(Law Commission, 13th Programme of Law Reform, 14.12.17)

ESMA: Draft Regulatory Technical Standards under the new Prospectus Regulation – Consultation paper

On December 15, 2017 the European Securities and Markets Authority (ESMA) published a consultation paper which seeks views on its proposed draft Regulatory Technical Standards (RTS) under the new Prospectus Regulation (Regulation 2017/1129) which came into force on July 20, 2017. These need to be submitted to the European Commission by July 21, 2018.

The draft RTSs relate to the following topics:

  • the minimum requirements for key financial information that should appear in the summary of the prospectus according to the type of issuer and the type of security;
  • data for the classification of the prospectus and how to ensure machine readability of information to be sent to ESMA in relation to the storage of, and mechanism for, providing the public with free of charge access and search functions;
  • advertisements relating to public offers or admission to trading;
  • situations which require the publication of a supplement to a prospectus; and
  • publication of a prospectus.

Next steps

The consultation closes on March 9, 2018 and the response form can be found here.

(ESMA, Draft Regulatory Technical Standards under the new Prospectus Regulation, 15.12.17)

ESMA: Final report on Regulatory Technical Standards on European Single Electronic Format

On December 18, 2017 the European Securities and Markets Authority (ESMA)  published its final report on its draft Regulatory Technical Standards (RTS) on the European Single Electronic Format (ESEF). From January 1, 2020 ESEF will be used by all listed issuers to prepare their annual financial reports.


In 2013 the Transparency Directive was amended to include, amongst others, a requirement for issuers to prepare their annual financial reports in a single electronic reporting format. ESMA was assigned the responsibility of developing RTS to specify this electronic reporting format. The aims of the ESEF are to make reporting easier for issuers and to facilitate accessibility, analysis and comparability of annual financial reports.


ESMA has published the following:

All relevant annual financial reports are to be prepared in XHMTL. This format can be opened with standard web browsers and can be prepared and displayed depending on the preferences of an individual issuer. Where an annual financial report contains IFRS consolidated financial statements, these are to be labelled with XBRL tags, making the labelled disclosures structured and machine-readable. This facilitates software-supported analysis and comparison of different reports. As XBRL taxonomies can contain labels in several languages, users will be able to compare numerical information in financial statements across issuers even though the issuers prepare their financial statements in different languages.

ESMA notes that, once implemented, ESEF could serve as a potential reference point for further EU wide initiatives to make company data more comparable, transparent and digitally accessible.

Next steps

ESMA has since submitted its final report to the European Commission, which has three months to decide whether to endorse the RTS.

(ESMA, RTS on the European Single Electronic Format final report, 18.12.17)

European Commission: Consultation to support SME listings

On December 18, 2017 the European Commission (the Commission) published a consultation document on building a proportionate regulatory environment to support small and medium-sized enterprise (SME) listings.

The Capital Markets Union (CMU) has aimed to facilitate access to finance for SMEs since the publication of its Action Plan in 2015. The CMU’s mid-term review, published in June 2017, raised the Commission’s level of ambition and strengthened its focus on capital-raising by SMEs on public markets. The Commission has set in motion a number of legislative and non-legislative actions aimed at reviving the public markets for high growth SMEs.

The consultation document is split into two sections:

  • First section: aims to capture views from all stakeholders on the main challenges facing SME markets. Responses will help the Commission identify the main drivers behind the downward trend of SME IPOs and bond issuances. The responses will also help the Commission to determine priorities for policy actions.
  • Second section: includes questions designed to help the Commission assess the benefits and the impact of possible changes to EU legislation. This section is broken into three sub-sections where the Commission evaluates the following: (a) the concept of ‘SME Growth Market’; (b) the administrative burden on SME Growth Market issuers; and (c) local ecosystems for SME Growth Markets.

Next steps

The Commission invites interested parties to provide feedback to the consultation by February 26, 2018.

(European Commission, Consultation on SME listings, 18.12.17)

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