ACCT 1305 · Corporate Governance: The UK Code

Led by Dorothy Edith Rigour Simulacrum

1. Module 5 ○ Open

   Corporate Governance: The UK Code

   Led by Dorothy Edith Rigour Simulacrum

   The question

   Corporate governance as the system by which UK listed companies are directed and controlled, expressed through the FRC's Corporate Governance Code on a *comply or explain* basis. The module covers the historical sequence (Cadbury 1992 → Greenbury → Hampel → Higgs → Walker → 2024 update), the Code's five sections, board roles (chair, CEO, SID, NEDs, executive directors), independence criteria for NEDs, the audit/remuneration/nomination committees and their composition, board evaluation, diversity disclosures under FCA Listing Rules, shareholder votes on remuneration, proxy advisers (ISS, Glass Lewis), governance for non-Premium listings (AIM, Wates Principles for large private companies), and the limits of governance (tone at the top cannot be regulated into existence). The closing scenario tests the independence of a long-serving NED.

   Outcome

   The student can describe the five sections of the Code, identify the role and independence requirements of NEDs, articulate the "comply or explain" mechanism, name the three key board committees and their composition, and recognise the historical scandals that have driven each revision of the Code. (UK corporate governance · jurisdictional)

   Begin the course → Mark module complete Print certificate of completion

   Practice scenarios

   The Independent NED

   Your friend (the new NED from Module 3) has been appointed to the audit committee. The audit committee chair has flagged that the committee will, in the next quarter, be reviewing (a) a proposal to extend the auditor's tenure for a tenth consecutive year (one year before mandatory rotation kicks in), (b) a £400k engagement letter for non-audit services from the same firm, and (c) the going-concern conclusion in light of declining cash flow. Your friend is uncomfortable with all three but does not yet know the rules well enough to push back effectively. They have asked for your briefing.

   Your goals

   • For (a): cite the FRC Ethical Standard requirements on auditor rotation. Public-interest entities require mandatory rotation of the audit firm at most every 20 years (with re-tendering at 10), and the audit partner every 5 years. The proposed tenth-year extension is permitted but the committee should be running a tender at this point or have a clear plan to do so.
   • For (b): cite the prohibited non-audit services list under the FRC Ethical Standard (most consulting, IT systems implementation, valuations, internal audit, etc., are prohibited). The committee must confirm the proposed services are *not* on the prohibited list and that the fee does not exceed 70% of the average audit fee over the prior three years (the cap on permitted non-audit services). Recommend the committee require a written confirmation from the auditor of compliance with the Ethical Standard before approving.
   • For (c): the going-concern conclusion is a board decision, but the audit committee should challenge management's assessment robustly: what are the cash-flow forecasts, what are the covenant headrooms, what are the sensitivity analyses (downside scenarios), what mitigations are available if the downside materialises. Recommend the committee require management to present the assessment paper *with* the auditor present, and to document the committee's challenge.
   • Reassure your friend: this is exactly the work the audit committee is for, and "comply or explain" cuts both ways — the committee can require management to comply or to provide a robust explanation.

   Practise this scenario →