FRC publishes Annual Review of Corporate Governance Reporting

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Published: 26 November 2024

The Financial Reporting Council (FRC) has today published its Annual Review of Corporate Governance Reporting 2024, providing important insights as companies prepare to implement the revised UK Corporate Governance Code from January 2025.

The review emphasises the continued importance of the Code's 'comply or explain' approach, which allows companies to depart from provisions when circumstances warrant, provided they offer high-quality explanations for their alternative approach. While companies are making good use of this flexibility, the FRC notes that the quality of explanations for departures could still be improved and urges investors, proxy advisors and service providers to support those companies that provide cogent explanations that demonstrate good governance.

With the revised Code taking effect from January 2025, it's pleasing to see companies are already preparing for those changes that affect their company’s circumstances. The new Code maintains its principles-based approach while emphasising outcomes-focused reporting and enhanced risk management. A key change is the introduction of Provision 29 – which comes into effect in 2026, will require strengthened reporting on risk management and internal controls from 2027.

The FRC was encouraged to see several companies already outlining their preparation work for the new Provision 29 requirements. However, the review also highlights that these areas still require attention in some cases as the detailed analysis of 130 companies found that 25 failed to report, or report clearly, on the effectiveness their internal controls.

“As companies prepare for the transition to the 2024 Code, we're seeing positive signs in outcomes-focused reporting and risk disclosure practices. However, the review identifies clear areas for improvement, particularly in internal controls reporting and the quality of explanations when companies depart from the Code.

"The flexibility of the Code remains fundamental, and we're pleased to see companies using this appropriately. As we approach this significant transition period, the FRC is committed to supporting companies with various tools and resources to enable effective implementation of the new Code."

Mark Babington, FRC Executive Director of Regulatory Standards

The FRC has also published a series of podcasts relating to key aspects of the revised code to support stakeholders. You can find the episodes focussing on; outcomes-based reporting, comply or explain optionality, audit committee minimum standards, diversity and culture on the FRC website.

View the Annual Review of Corporate Governance Reporting 2024.