FRC issues policy announcement confirming that a limited update to the Code will go ahead with more “targeted and proportionate” revisions

To those who have been following the audit and corporate governance reform agenda, and further to the Government announcement withdrawing the proposed secondary legislation, the FRC has issued a policy announcement confirming that the update to the Code will go ahead but will recognise the wider debate about business reporting requirements and burdens across the economy.

Taking all these factors into account, the FRC has decided that the right balance at the current time is to take forward only a small number of the original 18 proposals set out in the consultation and to stop development of the remainder. Significantly, the internal controls proposal will be taken forward informed by stakeholder feedback to ensure there is a more targeted and proportionate Code revision. This will include both allowing more time for its implementation and ensuring the UK approach is clearly differentiated from, what the FRC describes as, “the much more intrusive approach” adopted in the US.

The FRC is not planning to take forward the remainder of the original proposals. These include those relating to:

• the role of audit committees on environmental, social and governance reporting
• modifications to existing code provisions around diversity and over-boarding
• Committee Chairs engaging with shareholders
• the proposals relating to the now withdrawn Statutory Instrument, i.e. in relation to an audit and assurance policy, reporting on distributable profits and resilience statement requirements

A small number of changes that streamline and reduce duplication associated with the Code that were overwhelmingly supported by stakeholders in the interests of reducing burdens will be taken forward.

The announcement confirms the intention to issue an updated Code in January 2024. The FRC has further confirmed that it plans to explore ways of ensuring any guidance issued to support implementation of the Code is proportionate and limits burdens whilst not weakening effective governance.

We can also confirm that the Audit Reform Bill, and therefore the legislation required to establish the Audit, Reporting and Governance Authority, was not included in the King’s Speech.

You can read the full FRC policy update here.