FRC’s Expanded UK Corporate Governance Code
The Financial Reporting Council (FRC), which regulates accountants, auditors and actuaries, has published a revised UK Corporate Governance Code 2024, along with supporting guidance. The Code is mandatory for UK premium listed companies – though many companies do choose to apply it to their own operations.
When does it apply?
The Code was released on 22 January 2024 but does not actually come into effect until 2025. This means is will apply to financial years from 1 January 2025, with the exception of provision 29 which is to apply to financial years from 1 January 2026.
Provision 29 is a new reporting obligation and sets out several risk factors for poor-decision making in the context of complex decisions and the potential distortion of one’s judgement. Those factors include, for example, dominant personalities, failure to listen and act on concerns and complacency or intransigence.
A further change of particular note also relates to audit, risk and internal control principles. These have been expanded to clarify that boards are responsible for establishing and maintaining effective risk management and internal control framework.
A new Principle C relates to governance reporting: reporting is to focus on board decisions and their outcomes in the context of the company’s strategy and objectives. Where the board reports on departures from the Code’s provisions, a clear explanation should be provided.
Readers should also note updates provisions for Board leadership and company purpose; Composition, success, and evaluation; and Remuneration.
Guidance
The new and substantial guidance consolidates three separate pieces of FRC guidance (Guidance on Board Effectiveness, the Guidance on Audit Committees and the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting), which helpfully makes following the Code substantially more user-friendly.
The guidance is not mandatory; rather it is a guide to good practice for company directors and advisors. The FRC will continue to keep it under regular review to keep it up-to-date.
Headline points to note:
The guidance includes several questions for boards to consider – for each part of the Code
It also includes questions for specific board committees to consider
Detailed explanations of each part of the Code
Links to further material which company board can refer to and consider
The Code and the Guidance documents can be found here
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