Corporate Governance Code

The new Code applies to accounting periods beginning on or after 1 October 2014 for all companies with a premium listing of equity shares, regardless of where they are incorporated

The 'comply-or-explain' approach is the trademark of corporate governance in the UK and the code continues to follow this approach, with the clear statement that 'the Code is not a rigid set of rules. It consists of principles (main and supporting) and provisions.

The Listing Rules require companies to apply the Main Principles and report to shareholders on how they have done so.

The principles are the core of the Code and the way in which they are applied should be the central question for a board as it determines how it is to operate according to the Code.'

The key changes to the code, highlighted by the Financial Reporting Council, are in the following areas:


Going concern, risk management and internal control

  • Companies should state whether they consider it appropriate to adopt the going concern basis of accounting and identify any material uncertainties to their ability to continue to do so.
  • Companies should robustly assess their principal risks and explain how they are being managed or mitigated.
  • Companies should state whether they believe that they will be able to continue in operation and meet their liabilities, taking account of their current position and principal risks, and specify the period covered by this statement and why they consider it appropriate. It is expected that the period assessed will be significantly longer than 12 months.
  • Companies should monitor their risk management and internal control systems and, at least annually, carry out a review of their effectiveness and report on that review in the annual report.
  • Companies can choose where to put the risk and viability disclosures. If placed in the strategic report, directors will be covered by the 'safe-harbour' provisions in the Companies Act 2006.


  • Greater emphasis should be placed on ensuring that remuneration policies are designed with the long-term success of the company in mind, and that the lead responsibility for doing so rests with the remuneration committee.
  • Companies should put in place arrangements that will enable them to recover or withhold variable pay when appropriate to do so, and should consider appropriate vesting and holding periods for deferred remuneration.

Shareholder engagement

  • When publishing general meeting results, companies should explain how they intend to engage with shareholders when a significant percentage of them have voted against any resolution.

The code also highlights the importance of the 'board’s role in establishing the "tone from the top" of the company in terms of its culture and values', and that 'the directors should lead by example in order to encourage good behaviours throughout the organisation.' This includes diversity within the make-up of the board.

We have provided supporting information on both diversity and social mobility

International Standards on Auditing and guidance revisions

The FRC has issued a single document on the ISA changes, entitled Extracts from International Standards on Auditing (UK and Ireland) 260, 570 and 700 (Revised September 2014), which presents the revised paragraphs from ISAs 260, 570 and 700.

The revisions are effective for audits of financial statements for periods commencing on or after 1 October 2014. 

The FRC has also issued revised individual standards and new guidance that 'revises, integrates and replaces the current editions of the Financial Reporting Council’s "Internal Control: Revised Guidance for Directors on the Combined Code" and 'Going Concern and Liquidity Risk: Guidance for Directors of UK Companies:, and reflects changes made to the UK Corporate Governance Code.'

These changes impact primarily on businesses that are required to apply, or voluntarily apply, the code.

The revised standards and guidance are:

  • ISA (UK and Ireland) 700: The independent Auditor’s Report on Financial Statements;
  • ISA (UK and Ireland) 570: Going Concern;
  •  ISA (UK and Ireland) 260: Communication with Those Charged with Governance;
  • Guidance on Risk Management, Internal Control and Related Financial and Business Reporting; and
  • Guidance for Directors of Banks on Solvency and Liquidity Risk Management and the Going Concern Basis of Accounting.

Details can be found on the FRC website

The FRC has also indicated that it is considering a review of board succession planning as part of the next update to the Code in 2016. 

Please feel free to email us at with any views that you may have on this topic.