Status of the UK audit and corporate governance reform programme

In May 2022, the UK government published the response to its March 2021 consultation paper Restoring trust in audit and corporate governance (read more on our blog here). It confirmed that the government intends to take forward many of the reforms proposed in the consultation, though some in a modified form. A number of the reforms, including the creation of the Audit, Reporting and Governance Authority (ARGA) as the successor regulator to the Financial Reporting Council (FRC), require primary legislation. To date, a draft Bill has not been published or consulted on, and it has been widely reported that this reform bill will not be included in the King's Speech scheduled for November 2023 (which will set out the government's legislative programme for the next parliamentary session, expected to run until the forthcoming general election).

Notwithstanding this delay in the creation of the ARGA, some aspects of the governance reform are already being taken forward, through proposed amendments to the UK Corporate Governance Code and draft secondary legislation:

• in May 2023, the FRC launched a consultation on its proposed changes to the Governance Code (for a summary of the proposals contained in the consultation, including to strengthen the provisions of the Governance Code on internal controls and to improve transparency in relation to malus and clawback of directors' remuneration, see our briefing here). The consultation closed on 13 September and the FRC is now reviewing the feedback received. It is anticipated that the revised Governance Code will apply to financial years beginning on or after 1 January 2025; and
• in July 2023, the draft Companies (Strategic Report and Directors’ Report) (Amendment) Regulations 2023, which will impact all UK-incorporated companies (and groups) that have both 750 or more employees and an annual turnover of £750 million or more, were laid in draft for approval by Parliament (for further details on the draft Regulations, see our briefing here). These are also anticipated to apply for financial years beginning on or after 1 January 2025 and set out new disclosures required in the annual reports, including around distributable profits and a new resilience statement.