Earlier this month, Greg Clark, Secretary of State for Business, Energy & Industrial Strategy (BEIS), announced that the government would take forward the recommendations of the independent review of the Financial Reporting Council (FRC), led by Sir John Kingman and published in December last year. The headline changes include recommendations that the FRC be replaced, as soon as possible, with a new independent regulator - the Audit, Reporting and Governance Authority - which should be given a range of extensive new powers. The new regulator should, for example, increase the number and overall impact of corporate reporting reviews. It should be given power to direct changes to accounts without having to go to court.
One of the more eye-catching recommendations is that the government should consider the case for adopting a strengthened framework around internal controls on a similar basis to the Sarbanes-Oxley regime in the United States. Mr Clark has indicated that the government will explore options in this area and bring forward a detailed consultation in due course. Press comment (from the Financial Times, below) suggests that this would be a very significant change for UK companies.
Any legislative changes in this area are clearly some way down the track, and as with so many things it is impossible to predict the potential effects of Brexit. However, should the changes come to fruition, it will be more important than ever for company directors to pay scrupulous attention to their duties as directors and to implement a careful and thorough regime of corporate governance and reporting.
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