By Huw Jones
LONDON - Starting in January 2024, company directors will have to give investors stronger reassurance that annual reports are free of fraud after collapses at retailer BHS and builder Carillion, Britain's accounting watchdog said on Tuesday.
The British government said in May it will legislate to introduce a more powerful audit and company governance regulator, and change how auditors are hired.
But with no timetable for legislation, the Financial Reporting Council (FRC) set out on Tuesday changes it will propose which do not need a new law, such as amending Britain's "comply or explain" Corporate Governance Code, and introducing standards which are voluntary until legislation is brought in to make them mandatory.
"These long-awaited reforms are a once-in-a-generation opportunity to ensure corporate Britain upholds the highest standards of governance and protects those stakeholders who rely on high-quality reporting," FRC's chief executive Jon Thompson said in a statement.
After a public consultation early next year, the FRC said it will change the code from January 2024 so that companies have effective internal controls to ensure the accuracy of annual reports and other reports.
The change comes after Britain decided not to introduce into law a version of the stringent U.S. Sarbanes-Oxley rules which force company directors to personally attest to the accuracy of their financial statements or risk imprisonment for breaches.
The FRC will also write guidance for directors on reporting fraud, distributable profits, and resilience, meaning the company's ability to stay in business.
The FRC will also change the code to reflect a board's wider responsibilities for sustainability, and environment, social and governance reporting (ESG) as new disclosure requirements are rolled out.
There would be a provision for companies to take into account the need for "diversity" when tendering for a new auditor to dilute the dominance of EY, KPMG, PwC and Deloitte.
The code will be updated to strengthen reporting on when arrangements are triggered to reclaim a bonus, the FRC said.
There will be a pilot on how companies could report on remuneration, a topic increasingly under the investor spotlight.