Ashurst Governance and Compliance Update Issue 19
12 May 2022
IN THIS EDITION WE COVER THE FOLLOWING: |
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Queen's Speech – key corporate issues 1. Queen's Speech contains Audit Reform Bill |
Modern slavery and supply chain disclosure 2. FRC research: Modern slavery reporting requires significant improvement 3. Supply chain disclosure – FR Lab guidance published |
ESG – Sustainability reporting 4. Consultation launched on EU Sustainability Reporting Standards |
Narrative Financial Reporting - Auditor remuneration 5. ICAEW updates guidance on disclosure of auditor remuneration |
Narrative Financial Reporting – ESEF and diversity reporting 6. FCA publishes final instrument implementing changes to its Handbook |
Queen's Speech - key corporate issues |
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1. Queen's Speech contains Audit Reform BillThe Queen's Speech 2022 has been published. Despite numerous articles in the press to the contrary, an Audit Reform Bill is one of 38 different legislative measures that will make up the agenda for this session of Parliament. The Bill will bring forward legislation based on the government's 2021 'Restoring trust in Audit and Corporate Governance' consultation, feedback on which will be published 'shortly'. The stated purpose of the draft Bill is to:
The main elements of the draft Bill will:
Ashurst comment: 'That the Bill is being brought forward is to be welcomed. Various aspects of the current audit and corporate governance regime are in need of repair and enhancement, not least the audit regulator itself. However, it will be interesting to see the extent to which some of the more controversial proposals have survived, and with ARGA being given powers to enforce certain directors' duties and the introduction of managed shared audits, it is clear that some of them have. What also remains to be seen is the government's appetite for pushing through the reforms given their likely breadth and the amount of Parliamentary and civil service time they will take up as a result'. Other Bills of note included in the Speech include:
We will issue more detailed updates as policy statements, further consultations and draft legislation is published. |
Modern slavery and supply chain disclosure |
2. FRC research: Modern slavery reporting requires significant improvementIn conjunction with the Anti-Slavery Commissioner and Lancaster University, the Financial Reporting Council has published a review of reporting on modern slavery by UK incorporated main market listed companies, specifically a sample of 100 FTSE 100, FTSE 250, and Smallcap companies. The review examines reporting practice in modern slavery statements mandated under section 54 of the Modern Slavery Act 2015 (MSA) for 'in scope' companies, being those which supply goods or services with a turnover of more than £36m. It also investigates the extent to which companies are reporting on modern slavery in annual reports as part of their requirement to describe how opportunities and risks to the success of the business have been considered and addressed, with a particular focus on section 172 statements. By way of reminder:
The review concluded that: Modern Slavery Act statements
Modern slavery disclosures in annual reports
3. Supply chain disclosure – FR Lab guidance publishedThe FRC's Financial Reporting Lab has published its first 'insight' into current market issues in which it sets out guidance for companies in relation to supply chain risks and associated reporting. The Lab considers that clear and concise disclosures are key for investors. As such investors are likely to look for information that helps them understand:
Given those overarching considerations, the Lab then sets out questions and issues which may be useful for companies to consider in preparing their reporting. In summary, the information which investors will find useful will include:
The insight also links to other resources which the FR Lab believe will useful in this context. |
ESG – Sustainability reporting |
4. Consultation launched on EU Sustainability Reporting StandardsThe European Financial Reporting Advisory Group (EFRAG) has published a consultation on the draft EU Sustainability Reporting Standards (ESRS). ESRS will be used by firms required to report under the EU Corporate Sustainability Reporting Directive (CSRD) and which itself will significantly increase the extent of disclosure required under the existing Non-Financial Reporting Directive (NFRD). By way of reminder, it is currently intended that the amended NFRD will apply to a significantly larger constituency of EU incorporated companies including 'large' unquoted companies, potentially catching EU subsidiaries of UK incorporated companies doing business on the continent. It will continue to apply to EU and non-EU issuers of equity or debt securities admitted to EU regulated markets, albeit that it is also proposed that the threshold requirement of 500 employees for such entities will be removed. The consultation seeks feedback on a first set of exposure drafts which correspond to the first set of standards required under CSRD. These cover environment, social, governance and 'cross-cutting' standards. Feedback must be submitted by 8 August 2022. EFRAG intends to present the standards to the EU Commission for approval in November. It is envisaged that the CSRD will be finalised and come into force later in 2022, with the new requirements expected to apply in 2023. For details of other EU sustainability-focused directives which may impact on UK incorporated companies, please see: EU proposed Directive on Corporate Sustainability Due Diligence Reporting. |
Narrative Financial Reporting - Auditor Remuneration |
5. ICAEW updates guidance on disclosure of auditor remunerationThe Institute of Chartered Accountants in England and Wales (ICAEW) has published a revised version (TECH 01/22 FRF) of its guidance on the disclosure of auditor remuneration for the audit of accounts and other non-audit services, in accordance with the requirements of the Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008 as amended. By way of reminder, the Regulations require companies which are considered 'large' or 'medium-sized' for accounting purposes to disclose any remuneration receivable by their auditor for auditing their accounts. Such disclosures should be made in the notes to the accounts. 'Large' companies must also disclose remuneration receivable by their auditor or an associate of their auditor for non-audit services provided to the company or associates of the company. The guidance itself contains a series of Q&A on these disclosure requirements. The guidance is substantively unchanged from the previous version, while changes have been made to reflect legal, regulatory and corporate governance developments since December 2013, in particular the fact that, since 2016, small companies are not required to disclose auditor remuneration. |
Narrative financial reporting – ESEF and diversity |
6. FCA publishes final instrument implementing changes to its HandbookThe Financial Conduct Authority has published Handbook Notice 98 in which it deals with various amendments to its Handbook and, in particular:
The changes to the FCA Handbook are now in force. |
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The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.