Audit and corporate governance white paper: new Resilience Statement for listed issuers
31 Mar 2021
3 min read
On 18 March 2021, BEIS published its consultation paper on restoring trust in audit and corporate governance. The paper contains a wide range of proposals which are designed to strengthen the UK’s framework for major companies and the way in which they are audited. We are working our way through the paper and will publish a series of articles and posts on some of the key proposals.
Our second post looks at the new Resilience Statement. The proposal for a single consolidated statement on business resilience - the Resilience Statement - largely follows the recommendations of the Brydon Review.
- What's new? Companies with a premium listing will be required to publish an annual Resilience Statement. This will set out how directors are assessing the company’s prospects and addressing challenges to its business model including the risks posed by climate change.
- What's the reporting timeframe? The statement will cover business resilience over the short, medium and long term.
- Short term (1-2 years): This section is likely to incorporate the existing going concern statement.
- Medium term (5 years): This section will incorporate the existing viability statement which requires the board to assess the prospects of the company, and to specify the period in respect of which that assessment applies and why it is appropriate. The mandatory assessment period is likely to be five years rather than the three year period currently chosen by most companies who produce viability statements.
- Long term (indefinite): the contents of this section are unlikely to be prescribed. Instead this section will set out what the directors of the company consider to be the main long term challenges to the company and its business model, and how these are being addressed.
- What about climate change disclosures? The consultation seeks views on whether the Resilience Statement should specifically address the impact of climate change on the company’s business model and financial planning. In particular, views are invited on whether the Resilience Statement could provide a means for companies to provide disclosures consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). The consultation notes that the TCFD focus on climate related financial disclosures across the short, medium and long term may complement the structure of reporting under the Resilience Statement. The consultation is interested in feedback on whether, and if so how, these two reporting measures might be integrated.
- Is there likely to be a formal link between the Resilience Statement and the new dividend payment statement? Yes for companies which are subject to both requirements. The consultation suggests that when making a dividend payment statement directors should also confirm that the proposed dividend is consistent with the Resilience Statement.
- How will this be introduced? This is likely to be implemented as a new section of the existing Strategic Report - changes to the Companies Act 2006 will be required. The new Audit, Reporting and Governance Authority will issue guidance to support this new reporting requirement when it is introduced.
"Directors would also publish annual ‘resilience statements’ that set out how their organisation is mitigating short and long-term risks, encouraging their directors to focus on the long-term success of the company and consider key issues like the impact of climate change."