Investors Effective Company Stewardship

Effective Company Stewardship

The FRC’s report, ‘Effective Company Stewardship: Enhancing Corporate Reporting and Audit’, contains seven key recommendations. It responds to lessons of the financial crisis and builds on changes already made, such as the new UK Corporate Governance Code and the introduction of the Stewardship Code for institutional investors.

The report proposes that the whole of the annual report and accounts should be balanced and fair, including the chairman and chief executive reports, rather than just specific parts of it as at present. While the best annual reports continue to improve, research by the FRC shows that some companies fall short of fulfilling their Companies Act requirements. Of 50 companies studied, a half to two thirds fell short in some areas, including in their reporting of principal risks.

The FRC also proposes a more substantial communication role for Audit Committees so that they provide fuller reports to shareholders, particularly in relation to the risks faced by the business. The auditors’ report should, in turn, include a new section on the completeness and reasonableness of the Audit Committee report, particularly in relation to the dialogue between them and the Committee.