TEAM FOCUS: RISK ADVISORY SERVICES
ARE YOU READY FOR INCREASED DIRECTOR ACCOUNTABILITY FOR INTERNAL CONTROLS?
by Ruth Ireland, National Head of Risk Advisory Services
R eforms to the UK coming, with important impacts on directors’ accountability for internal controls. Our RAS experts are helping affected businesses to understand corporate governance environment are what’s happening and prepare for the changes. The March 2021 consultation paper issued by the Department for Business, Energy and Industrial Strategy (BEIS) on ‘Restoring trust in audit and corporate governance’ will affect the UK’s major companies in many ways. As well as including more companies in the definition of Public Interest Entity (PIE) – including large private companies and others that may be in the public interest – there will be new requirements relating to internal controls for corporate reporting, audit committees and assurance.
Directors could also be required to carry out
Our best estimate is that premium-listed companies may need to comply from 2023/24, with other public interest entities, including large private businesses, following thereafter.
One particular proposed reform would increase the accountability of directors for internal controls over financial reporting and other non-financial information including environment, social and governance (ESG) matters, supplier payment policy and practices, performance indicators linked to remuneration, and anti-fraud arrangements. The BEIS consultation paper outlines proposals for implementing a UK Sarbanes-Oxley (SOx) style regime, including stronger disclosure and potential attestation requirements, albeit with great flexibility and proportionality. The Government is considering a number of options in relation to internal controls but has stated a preference for reforms such as a Directors’ Responsibility Statement. This would require directors to acknowledge
an annual review of the effectiveness of internal controls over financial reporting, explain the outcome of the review, and make a statement as to whether they consider
the system to have operated effectively. Disclosure of the benchmark system used tomake the assessment is also likely to be required, as well as any deficiencies in the control system and associated remedial actions. The timetable for introducing the Government’s final reforms is yet to be confirmed.
their responsibility for establishing and
maintaining an adequate internal control structure
and procedures for financial reporting.
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