Review of the application of the Wates Principles for large private companies

The Financial Reporting Council (FRC) has published its first review of the application of the Wates Corporate Governance Principles by large private companies.

Under the Large & Medium-Sized Companies and Groups (Accounts & Report) Regulations 2008, for accounting years beginning on or after 1 January 2019 in-scope companies are required to include a statement in their directors’ report on their corporate governance arrangements (if they are not already required to report against a specific corporate governance code, for example under the Listing Rules). The requirement applies to companies which have: (i) more than 2,000 employees; and/or (ii) a turnover of more than £200 million and a balance sheet total of more than £2 billion. The Wates Principles were developed to provide private companies with a framework to comply with these requirements.

As companies were granted additional time to file accounts during the Covid-19 pandemic, the annual reports covered by the review were the first round that included the corporate governance statement required under the regulations. Of the annual reports reviewed, the FRC found that:

• around two thirds included a statement on their corporate governance arrangements; and
• of those that stated that they had applied a particular corporate governance code, over 75% used the Wates Principles.

The review also considers the adherence to the “apply and explain” approach set out in the Wates Principles and the quality of the disclosures made as against the guidance provided. The FRC acknowledges that whilst there are positive aspects in relation to the application of the Wates Principles, there is room for improvement.