20th April 2012, 2 years after release of the UK Corporate Governance Code, the FRC has begun consultation on proposed changes.

The consultations also addresses the Stewardship Code, Audit Committees and International Accounting standards.

The Consultation Document includes proposed changes to the UK Corporate Governance Code such as :

  • Requesting FTSE 350 companies to put the external audit contract out to tender at least every ten years;
  • Asking boards to explain why they believe their annual reports are fair and balanced;
  • Encouraging more meaningful reporting by audit committees;
  • Providing more guidance on explanations that should be provided to shareholders when a company chooses not to follow the Code; and  
  • Provisions previously announced requiring boards to report on their gender diversity policies.

The FRC is also consulting on proposed changes to the Guidance on Audit Committees to support the changes to UK Corporate Governance Code and to give effect to the FRC’s Effective Company Stewardship proposals.

The proposed changes to the auditing standards are mainly directed at:

  • Enhancing auditor communications by requiring the auditor to communicate to the audit committee information that the auditor believes the committee will need to understand the significant professional judgments made in the audit; and
  • Extending auditor reporting by requiring the auditor to report, by exception, if the board’s statement of why the annual report is fair and balanced is inconsistent with the knowledge acquired by the auditor in the course of performing the audit, or if the matters disclosed in the report from the audit committee do not appropriately address matters communicated by the auditor to the committee.

The Consultation Document, that contains the proposed changes to the Stewardship Code include:

  • Clarifying what is meant by stewardship, and the respective responsibilities of asset owners and asset managers; and
  • Asking investors to disclose their policy on stock lending, and whether they recall lent stock for voting purposes

The planned implementation date is for financial years starting after 12 October 2012.