UK: Governance in Brief
Your periodic summary of the latest corporate governance developments

In brief: The Securities and Exchange Commission are considering giving foreign companies an extra year to comply with rules that require them to test and report on their internal controls.

The delay would mean foreign companies with US listings would not have to comply with section 404 of the Sarbanes-Oxley Act until 2006. Under the existing SEC timetable, foreign companies are due to comply with section 404 from July this year. A revised compliance date may be announced as early as the end of this month.

Date: 11 February 2005

Source: Financial Times

Further info: www.ft.com or www.sec.gov/spotlight/sarbanes-oxley.htm

In brief: In a written statement to Parliament, Patricia Hewitt said that rules on pay disclosure introduced by the Government (Directors’ Remuneration Report Regulations 2002) had had a "positive impact" and that the independent report by Deloitte underlined the effectiveness of the Government’s action in making directors’ remuneration subject to closer scrutiny by shareholders.

Date: 25 January 2005

Source: Department of Trade and Industry

Further info: www.dti.gov.uk/cld/Deloitte_Rep_DRRR_2004.pdf

In brief: In preparation for its review of the implementation of the July 2003 FRC Combined Code the FRC has carried out an informal assessment of the impact of the revised Code. Between September and November 2004, the FRC held discussions with business and investors and analysed annual reports and publicly available survey data. Key findings include a general belief that the corporate governance climate has improved over the last twelve months, an increased dialogue with companies and greater chairman involvement on corporate governance issues and that issues such as performance evaluation and professional development are being taken seriously.

Date: 13 January 2005

Source: Financial Reporting Council

Further info: www.frc.org.uk/press/pub0738.html

In brief: Draft regulations to implement the OFR were laid before Parliament on 12 January 2005. They are subject to debate in Parliament before they can come into force. When final, the Regulations will introduce a new requirement into the Companies Act 1985 for directors of quoted companies to prepare an OFR. They will also expand the existing requirement for companies to include a fair review of their business in their directors’ report. It is expected that the Regulations will come into force for periods commencing on or after 1 April 2005.

Date: 12 January 2005

Source: Department of Trade and Industry

Further info: www.dti.gov.uk/cld/financialreview.htm

In brief: This is a consultation on draft regulations requiring companies to provide information about the types of services that they and their associates have purchased from their auditors and their associates, and to ensure that this information is published in one place. The intention is to give shareholders and others information on which to make a judgement about whether the provision of non-audit services is a threat to a company auditor’s objectivity or independence and to enable users of accounts to make meaningful comparisons across companies.

Date: 5 January 2005

Source: Department of Trade and Industry

Further info: www.dti.gov.uk/consultations/consultation-1415.html

Deadline: 24 March 2005

In brief: A consultation paper has been issued which canvasses views on what is needed in the UK. The paper is one part of an evidence gathering phase, at the end of which the Review Group seeks to have a good understanding of how the Turnbull guidance has been implemented in practice and where improvements, if any, could be made.

It is intended that any revised guidance will take effect for financial years starting on or after 1 January 2006.

Date: 2 December 2005

Source: Financial Reporting Council

Further info: www.frc.org.uk/documents/pdf/turnbull_review.pdf

Deadline: 2 March 2005

• Take steps to take advantage of the relaxation of the current prohibition on companies indemnifying directors against third party actions included within the Companies (Audit, Investigations and Community Enterprise) Act 2004.

• Watch out for the first companies to publish annual reports incorporating the full disclosure requirements of the July 2003 FRC Combined Code to gather ideas for your own reports.

• Obtain a copy of the Deloitte Corporate Governance Disclosure Checklist – January 2005 and use this to ensure that your corporate governance disclosures meet the current requirements.

• Contact Deloitte to discuss the findings of our report on Directors’ Remuneration Reports and compare to your own report to identify any areas for improvement.

• The final Regulations on the Statutory Operating and Financial Review.

• DTI Supporting Guidance on the OFR and changes to the directors’ report.

• SEC final announcement re a potential delay in the Sarbanes-Oxley compliance date for non-US issuers.

• Finalisation of 4th and 7th Directives from the EC.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.