The government ordered reviews that produced recommendations including stronger internal controls at companies to improve audit quality. — Reuters
LONDON: Boards of listed companies face tougher hurdles from January 2025 to show investors they have effective safeguards against fraud to ensure accurate financial reports, Britain’s corporate governance watchdog is proposing.
Following collapses at retailer BHS and builder Carillion, the government ordered reviews that produced recommendations including stronger internal controls at companies to improve audit quality.
The government rejected calls to introduce a version of the stringent US Sarbanes-Oxley law, which requires company directors to personally attest to the accuracy of financial statements, or risk going to prison for breaches.
Instead, Britain’s Corporate Governance Code, a form of “soft” law, is being updated.
Currently boards have to state in annual reports if they have set up effective internal controls.
The Financial Reporting Council (FRC) said its proposals toughen this up to include stating if controls have been kept effective on an ongoing basis during the reporting period, and explain why they reach this conclusion.
“The objective of our proposed approach is to avoid a situation where the review of effectiveness is seen as a one-off exercise,” the FRC said.
Other proposals, put out to public consultation, include more emphasis on audit committees at companies to promote effective competition when selecting an auditor – an attempt to dilute the dominance of EY, KPMG, Deloitte and PwC in auditing blue chip companies.
The code is applied to companies with a “premium” listing on a “comply or explain” basis, meaning a company notes compliance or gives reasons if it decides not to. — Reuters
