The UK risks losing its global reputation for best practice in corporate governance, ICAEW has warned in its response to the Financial Reporting Council’s (FRC) consultation on the Corporate Governance Code.

The proposed changes to the Code lack major aspects of the new G20 / OECD Principles for Corporate Governance, ICAEW found, with omissions on sustainability and the need for companies to have ethics and compliance programmes, representing a potential missed opportunity.

In its response to the consultation, which closed this week, ICAEW welcomed plans to put director accountability and audit committees at the heart of governance reforms. However, it warned that many of the proposed changes to the Code could be onerous to implement, requiring substantial additional work and disclosures which could further reduce compliance when it has already dropped significantly since 2020.  

ICAEW called on the regulator to ensure that an updated version of the Code remains an example of global best practice and makes compliance by business both feasible and desirable.

Clear and high-quality guidance is needed across a number of areas, and the accountancy body called for the development of a one-stop-shop of relevant resources and guidance to help companies understand their reporting requirements.

ICAEW cautioned that without clear and high-quality guidance the US Sarbanes-Oxley (SOX) template could be applied “through the back door” in the UK, and even extended to include operational and compliance controls. This could make complying with the new Code even more onerous than SOX.

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Meanwhile, clearer guidance on implementing good corporate culture is also needed, otherwise companies may treat requirements as a box-ticking exercise.

ICAEW director of corporate governance and stewardship, Peter van Veen, said: “With major corporate failures becoming more common, nurturing a positive and comprehensive approach to corporate governance in the UK has never been more important. Reforming the Corporate Governance Code is a key part of restoring trust in audit and corporate governance, but more needs to be done to ensure that compliance is both achievable and desirable.

“We would have liked to have seen a more joined up review of the Code and associated guidance as that would have given a clearer picture of what the proposed changes are likely to mean in practice. The absence of a section dedicated to sustainability is also disappointing given the increasing importance of international climate disclosures and new sustainability reporting regulations coming into force.

“Going forward, we believe the development of a one-stop-shop of relevant resources and guidance to help companies understand their reporting requirements would be highly beneficial and we would be happy to work with the FRC to develop this.

“The government must now prioritise the remaining areas of its promised audit and corporate governance reforms and find the parliamentary time to establish ARGA.”