Yesterday, 16 October 2023, the Government announced that it had decided to withdraw the Companies (Strategic Report and Directors’ Report) (Amendment) Regulations 2023. The full announcement can be accessed here: Burdensome legislation withdrawn in latest move to cut red tape for businesses - GOV.UK (www.gov.uk).

Today the FT published a story entitled “Six years after Carillion, UK audit reform is still circling the drain” available here: https://www.ft.com/content/e93fa5ea-6dc9-4536-adda-79fbf4f67a0e.

Does this mean that proposals to create the Audit , Reporting and Governance Authority will also be put on ice?

Only time will tell but for the moment the press release published by the Department for Business and Trade states that: “The Government remains committed to wider audit and corporate governance reform, including establishing a new Audit, Reporting and Governance Authority to replace the existing Financial Reporting Council. We will bring forward legislation to deliver these reforms when Parliamentary time allows.”

Either way the mood music is very different from that in 2021 when the overall audit and corporate governance reform process started. See our previous article: Corporate governance and audit – a wide-ranging programme of reforms (burges-salmon.com). 

What does this mean in practice?

It means that companies within the scope of the proposed regulations will not be required to provide four additional statements in their formal financial reporting.

The proposal had been for four additional statements to be included as follows:

• an annual resilience statement which would have contained a summary of the company’s strategic approach to managing risk and building or maintaining resilience over the short, medium and long-term; 
• a triennial audit and assurance policy statement which would have contained the following information:
  • a description of the company’s operation and governance of internal auditing and assurance;
  • an explanation of the company’s plans for obtaining internal assurance over the annual accounts and reports;
  • what external assurance, if any, the company had intended to seek over a three year period in relation to the annual accounts and reports of the company in addition to the statutory audit of the accounts;
  • an explanation of whether, and if so how, the company planned to seek external assurance over (i) some or all of the company’s resilience statement; and (ii) the effectiveness of the company’s internal controls over financial reporting;
  • an explanation of the extent to which shareholder views had been taken into account in the development of the audit and assurance policy; and
  • an explanation of the company’s policies in relation to the tendering of external audit services.
• an annual material fraud statement which would have contained:
  • a summary of the directors’ assessment of the risk of material fraud to the company’s business operations, including how the directors have assessed the company’s susceptibility to material fraud and the types of material fraud considered; and
  • a description of the main measures  in place to prevent and detect the occurrence of material fraud.
• an annual policy statement concerning distributions and purchase of own shares which would have required a number of additional disclosures including:
  • the directors’ policy towards the amount and timing of distributions to shareholders and the purchase of own shares during the short and medium term; and
  • the considerations and factors which the directors considered material to their policy governing distributions and the purchase of own shares.

The specific disclosure requirement which would have required in-scope companies to disclosure the amount, at the beginning and at the end of the financial year, of the company’s profits available for distribution within the meaning of section 830(2)(2) of the Companies Act has also been dropped. 

Which companies would have been affected by these regulations?

The regulations were targeted at companies with a high level of employees and turnover. In practice this meant companies with at least 750 employees and an annual turnover of at least £750 million.

How can we help?

If you would like to discuss this development or corporate governance generally, please speak to your usual contact at Burges Salmon or contact Nick Graves, head of the firm's Corporate Group.