Changes to the rule on information disclosure that companies listed in London Stock Exchange’s AIM market should apply came into effect on 11 August, amending the auditor’s report of those AIM-listed companies that chose to apply the UK Corporate Governance Code.
The amended AIM Rule 26 requires now AIM-listed companies to make public on their websites to include details about their corporate governance code.
Companies must include details of which corporate governance code they have decided to apply, if any, as well as information on how they comply with the code.
Similarly if the company has decided to not adopt a corporate governance code, it must report the decision on its website.
The change in AIM Rule 26 comes as result of a June 2013 amendment to the standard governing the auditor’s report in the UK and Ireland or International Standard on Auditing (UK and Ireland) 700, introduced by the UK Financial Reporting Council (FRC).
The amendment required the auditors of companies listed on the London Stock Exchange, and therefore necessarily compliant with the UK Corporate Governance Code, to provide further information on their corporate governance policies and provide a longer audit report.
According to the Quoted Companies Alliance (QCA), a membership organisation for small to mid-sized quoted companies AIM-listed companies have three options.
First, to comply with the UK Corporate Governance Code; second, follow the QCA Corporate Governance Code for Small and Mid-Size Quoted Companies; and third, apply another code or none at all.
The QCA said in a statement companies need to "carefully consider how they will satisfy the new AIM Rule 26 obligations", as the decision of which code to apply "may have implications on not only corporate government affairs but also the manner in which an audit is conducted and reported on."
UHY Hacker Young technical and training partner Jack Easton told The Accountant the generalised issue is how useful and how communicative audit reports are.
"Given that the auditors have checked the accounts on behalf of shareholders, the wider investment community feels that auditors should be able to tell them more about the inner workings of the company and the uncertainties within the black and white of the annual report," he said.
This increased desire for audit qualification is behind the June 2013 amendments to the international standard on the auditor’s report.
As such, while AIM companies do not have an obligation to comply with any corporate governance code, if they do choose to comply with the UK Corporate Governance Code must also provide a longer report.
Easton explained: "the extra audit report is for companies that have to follow the full UK corporate governance code, or for companies that choose to, so for most AIM companies it will be a non-point, it will be an extra reason why they haven’t adopted the full code."
However, for those AIM companies who have chosen the UK Corporate Governance Code, "their auditors will have to look more closely on the compliance with that code and what the company say in the annual report relating to their compliance with the code."