Included in this issue: Audit tenders: updated FRC notes on best practice; Gender pay gap reporting – Guidance published; Green Paper on Defined Benefit Pension Schemes and more...
Best Practice in Audit Tendering
Audit tenders: updated FRC notes on best practice
In light of the implementation of the EU Statutory Audit Regulation and Directive, the Financial Reporting Council (FRC) has published updated notes on best practice in conducting an audit tender with the aim of giving ideas to audit committees so that they, in turn, can conduct an effective tender process. The notes are based on discussions with audit committee chairs, investors and audit partners. The updated notes deal with, among other matters, the following issues:
- the timing of tenders;
- communication with investors before and on the conclusion of the tender process;
- considerations for and the responsibilities of members of the audit committee in relation to the tender;
- structuring and conducting the tender process;
- how the decision is made and by whom, including negotiating the audit fee; and
- managing any transition between auditors.
Audit tenders: IA guidelines
The Investment Association (IA) has also published guidelines, setting out the expectations of its members when companies put their audits out to tender. The guidelines repeat many of the FRC's recommendations and broadly deal with:
- planning the tender – the IA support audit committee oversight of the tender process and encourage appropriate disclosures in annual reports or via RNS announcements;
- tender candidates – the IA believe that it is of critical importance to prioritise auditor selection and, in particular, audit quality, over the ability of the audit firm to provide other services. Investors want audit committees to be transparent on how they decided on the candidates, especially if one of them is the incumbent;
- the tender process – clear objectives should be set as to what the audit committee wants to achieve and what is looked for in an auditor; and
- the tender decision – following any tender, the audit committee should consider reporting on various issues including: the various stages in the tender process; how firms and their fees were assessed and why the appointed auditor was recommended; and an overview of the handover process.
Gender Pay Gap Reporting
Gender pay gap reporting – Guidance published
Draft guidance has been published by the Advisory, Conciliation and Arbitration Service (Acas) and the Government Equalities Office which aims to help large businesses abide by the new gender pay gap regulations. Under the new law, coming into force in April 2017, large companies are required to take a salary snapshot of male and female employees and report on gender pay gaps within their organisations. For further detail, please see our Employment team's Practical Guide to Gender Pay Gap Reporting.
Reporting on Payment Practices Duty to report on payment practices and performance: BEIS guidance
The Department of Business, Energy and Industrial Strategy (BEIS) has published its guidance on reporting on payment practices and performance. By way of reminder, relevant companies and LLPs must comply with this statutory reporting duty in relation to financial years beginning on or after 6 April 2017. Among other things, the guidance sets out:
- which companies and LLPs are within scope, and when parent companies and parent LLPs will be required to report;
- what needs to be reported in respect of payment terms and payment performance; and
- when and where the information must be reported.
For further detail, please see our Commercial team's overview of the regime.
Green Paper on Defined Benefit Pension Schemes
Our Pensions team's e-bulletin discusses the Government's Green Paper on Defined Benefit Pension Schemes published on 20 February 2017. The area where change seems most likely is in relation to a possible statutory override to enable more schemes to adopt CPI-based indexation/revaluation, although at this stage the Government is seeking views on the issue rather than putting forward a formal policy proposal. Many companies will be relieved that the Government appears wary of significantly increasing the Pensions Regulator's powers in relation to corporate transactions.
Corporate Governance FRC announces review of UK Corporate Governance Code
The FRC has announced plans to carry out a fundamental review of the UK Corporate Governance Code, taking into account the work it has completed on corporate culture and succession planning, and the issues raised in the BEIS Green Paper on corporate governance reform. The FRC will commence a consultation on its proposals later in 2017. The FRC's response to the Green Paper also makes for interesting reading.
Equity Capital Markets
FCA policy statement on changes to DTR 2.5 - delaying disclosure of inside information
The Financial Conduct Authority (FCA) has set out the Handbook changes it has made to DTR 2.5 in relation to the circumstances in which issuers may delay the disclosure of inside information. Changes have been made in light of the implementation of the EU Market Abuse Regulation (No. 596/2014) (MAR) and, more pertinently, the Guidelines issued by the European Securities and Markets Authority (ESMA). The FCA has proceeded with proposals to amend DTR 2.5 as outlined in its consultation paper, save for:
- clarifying in DTR 2.5.1BG that the ESMA Guidelines contain a non-exhaustive and indicative list of the legitimate interests of issuers to delay disclosure of inside information and situations in which delayed disclosure is likely to mislead the public. Notwithstanding this clarification, the FCA reminds issuers that, despite the list being non-exhaustive and indicative, it is the FCA's and ESMA's expectation that Article 17(4) of MAR (which sets out the ability of an issuer to delay disclosure provided certain conditions are met) should be narrowly interpreted; and
- limiting the scope of DTR 2.5.4(1)G (which considers the scope of the provisions as to the delay of disclosure) to paragraph 5(1)(8)(a) of the ESMA Guidelines only - i.e. where an issuer is in the process of conducting negotiations.
The changes came into force on 24 February 2017.
FCA consults on UK primary capital markets and Listing Rules
The FCA has published a discussion paper: ‘Review of the Effectiveness of Primary Markets: The UK Primary Markets Landscape’ (DP17/2). The FCA is interested in views on various matters including: the current split, and continued relevance of the difference, between standard and premium listing segments; support for specialist issuers, such as science and technology companies; the listing of debt securities; and retail access to debt markets. Responses are requested by 14 May 2017.
FCA consultation on amendments and new technical notes
The FCA has also published a consultation paper entitled: 'Review of the Effectiveness of Primary Markets: Enhancements to the Listing Regime' (CP17/4) in which it proposes, among other things:
- clarifying the premium listing eligibility requirements for commercial companies (in LR 6) and introducing two new technical notes which deal with financial information and track record requirements, and the independent business requirements for companies applying for premium listing;
- changes to the concessionary routes to premium listing, including the introduction of a new concessionary route for certain types of property company;
- changes to the profits test in the context of classifying transactions (in LR 10 / LR 11) of application to premium listed issuers. In addition, the FCA is also consulting on whether it should include further adjustments to the profit test results, or alternative measures of profitability in the classification rules; and
- a change in its approach to reverse takeovers, such that it will no longer assume, where a reverse takeover is in contemplation, that there will be insufficient information in the market about the target, which, in turn, means that they will require a suspension of listing.
Guidance emphasises importance of ESG reporting
The London Stock Exchange Group has published guidance on good practice when undertaking environmental, social and governance (ESG) reporting designed to ensure a more consistent approach to ESG reporting.
The guidance highlights eight priorities for ESG reporting: strategic relevance; investor materiality; investment grade data; global frameworks; reporting formats; regulation and investor communication; Green Revenue reporting; and debt finance.