Directors' know how: what you should know about the upcoming changes

23rd November 2017

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Directors' know how is a monthly article, which highlights key rule changes, proposed changes and market updates so that you know what is coming down the track.

FRC announces thematic reviews for 2018/19 on aspects of corporate reports

The Financial Reporting Council has published a series of thematic reviews of certain aspects of corporate reports that it will conduct in 2018/19. These reviews will cover areas where there is particular shareholder interest, and scope for improvement and learning from good practice.

The themes to be reviewed are:

  • Targeted aspects of smaller listed and AIM quoted company reports and accounts – The FRC will write to 40 smaller and AIM quoted companies prior to their year-end, informing them that it will review two specific aspects of their next published reports and accounts, which will be drawn from five areas covered in recent FRC thematic reviews or Financial Reporting Lab reports. You can read the FRC’s approach to the reviews of smaller listed and AIM quoted company reports here.
  • The effect of the new International Financial Reporting Standards (IFRSs) on revenue and financial instruments on companies’ 2018 interim accounts – The FRC will conduct a focused review of the detail reported in June 2018 interim reports of a number of companies in industries where the new IFRSs on revenue and financial instruments are expected to have the most material impact You can read the FRC’s approach to the news IFRSs on revenue and financial instruments here;
  • The expected effect of the new IFRS for lease accounting – The FRC will monitor disclosures in December 2017 reports and accounts relating to the future impact of the implementation of the new IFRS on lease accounting.; and
  • The effects of Brexit on companies’ disclosure of principal risks and uncertainties.

Investment Association publishes revised Principles of Remuneration

The Investment Association has published its 2018 Principles of Remuneration. Following on from the 2017 version, they reflect current best practice for listed companies when setting the pay of top executives. Although many changes are generally incremental, the main changes that companies should note are with respect to:

  • Relocation benefits – Companies are expected to disclose relocation benefits at the time of appointment, be in place for a limited time, and fully detailed in the Remuneration Report.
  • Annual bonuses – Companies should disclose bonus targets within twelve months of the bonus payment, and that deferral is expected for any bonus opportunity greater than 100% of salary.
  • Long term incentive schemes – This section has been re-organised to provide clarity on investors’ attitudes to specific examples of schemes.

Furthermore, in a letter to chairs of remuneration committees, the Investment Association has also outlined areas that investors will be focussing on during the 2018 AGM season. These include:

  • Pay ratios – Companies will now be expected to disclose the pay ratios between the chief executive and median or average employee, as well as between the chief executive and the executive team.
  • Pay for performance – Companies should be showing a greater level of transparency on both financial and non-financial bonus targets to ensure that pay is in line with performance.
  • Clarity on incentives – Companies which appropriately align their incentive arrangements with the delivery of their long term strategy will be supported by investors.
  • Levels of executive pay – As future variable pay awards (such as bonuses and long-term incentive plans) have been reduced at larger companies in 2017, companies at the lower end of the market are also expected to show restraint on future pay awards.

AIM companies have until 30 November 2017 to obtain a Legal Entity Identifier from London Stock Exchange

All AIM companies with securities admitted to trading on AIM must obtain a Legal Entity Identifier (LEI) from London Stock Exchange by Thursday 30 November 2017 in order to ensure compliance with the obligations under MiFID II, which comes into force on 3 January 2018.

An LEI is a unique 20-digit, alpha-numeric code developed by the International Organization for Standardization (ISO) and connects key reference information that enables clear and unique identification of legal entities participating in financial transactions.

If your company has not obtained an LEI yet, please follow the steps detailed in AIM Notice 47.

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