FRC’s latest review of corporate governance reporting
The FRC calls for improvement in the quality of explanations for departures from the Code, but also urges investors and proxy advisors to support the 'comply or explain' nature of the code where cogent 'explanations' demonstrate good governance.
The Financial Reporting Council (FRC) has published its Annual Review of Corporate Governance Reporting 2024, providing important insights as companies prepare to implement the revised UK Corporate Governance Code from January 2025.
The review emphasises the continued importance of the Code's 'comply or explain' approach, which allows companies to depart from provisions when circumstances warrant, provided they offer high-quality explanations for their alternative approach. While companies are making good use of this flexibility, the FRC notes that the quality of explanations for departures could still be improved, and also urges investors, proxy advisors and service providers to support those companies that provide cogent explanations that demonstrate good governance.
With the revised Code taking effect from January 2025, companies are already preparing for those changes that affect their company’s circumstances. The new Code maintains its principles-based approach while emphasising outcomes-focused reporting and enhanced risk management. A key change is the introduction of Provision 29, comes into effect in 2026 and will require strengthened reporting on risk management and internal controls from 2027.
The FRC was encouraged to see several companies already outlining their preparation work for the new Provision 29 requirements. However, the review also highlights that these areas still require attention in some cases as the detailed analysis of 130 companies found that 25 failed to report, or report clearly, on the effectiveness of their internal controls.
The FRC has also published a series of podcasts relating to key aspects of the revised code to support stakeholders, with episodes focussing on:
- outcomes-based reporting;
- comply or explain optionality;
- audit committee minimum standards; and
- diversity and culture.
View the Annual Review of Corporate Governance Reporting 2024
Published 28 November, 2024