Internal controls for premium listed companies

1) Code-based approach to directors’ responsibilities on internal controls

• the Government intends to take a Code-based approach, rather than legislative, as the most practical and proportionate way of strengthening boardroom focus on internal control matters’.

2) How the code will be strengthened

• the internal control provisions in the UK Corporate Governance Code will be strengthened to provide for an explicit statement from the board about its view of the effectiveness of the wider internal control systems (financial, operational and compliance systems) and the basis for that assessment.
•  there is no requirement for assurance over internal controls. However, PIEs above the size thresholds will be required as part of the proposed “minimum content” for the new Audit and Assurance Policy, to state whether or not they plan to seek external assurance of the company’s reporting on internal controls

3) Enhanced auditor reporting on internal controls

• consideration will be given to how the content of the auditors’ report could be improved to provide more information about the work auditors have undertaken on internal controls over financial reporting.

4) Effectiveness of internal control changes will be reviewed

• the Government and the regulator will review the effectiveness of the envisaged Code changes in driving improved standards of internal control and more informative reporting as part of the Post-Implementation Review of the reform package due to take place 5 years after its reform legislation first comes into force.
• if necessary, new statutory reporting requirements relating to internal controls could be introduced using existing powers in the Companies Act 2006.