ACADEMY OF FINANCE

ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

CHAPTER 12: Corporate governance

Thu TRAN, PhD.
Nhung DAO, PhD.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

Contents
1. The role of the UK Corporate Governance Code
2. Content of the UK Corporate Governance Code
3. The role of external audit
4. The role of internal audit
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

Learning Objectives
üIdentify and show the distinction between the roles and responsibilities of
charged with corporate governance and those charged with management;
üIdentify the roles and responsibilities of the members of the executive board, any
supervisory board, the audit committee and others charged with corporate
governance, internal and external audit;
üIdentify the roles and responsibilities of those responsible within a business for
internal audit and for the external audit relationship.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

Syllabus link
üAudit and Assurance at the Professional level & at the Advanced level
Assessment context
üMCQ;
üStraight tests of knowledge;
üApplications of knowledge to a scenario
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

1. The role of the UK Corporate Governance Code

vWhat is the UK Corporate
long-term substanable value objective
Governance Code?
vThe UK Corporate Governance Code is a Code of practice that follows a
corporate perspective on corporate governance. principle - main + supporting
provisions (detailed)
vRequirements of shareholders
vRequirements of companies
vUK Corporate Governance Code
vThe first version of the UK Corporate Governance Code (the Code) was published
in 1992 by the Cadbury Committee
vThe latest version in 2018. The 2018 code focuses on the application of
Principles. The Listing Rules require companies to make a statement of how
they’ve applied Principles.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

1. The role of the UK Corporate Governance Code

v‘Comply or Explain regime’
vLSE Listing Rules require all premium listed companies:
vTo apply the Code’s main principles; and
vTo include in their annual reports: giải trình
vA statement of compliance with the supporting principles and provision of
the Code, or
vAn explanation of non-compliance.
giải thích tại sao nếu không tuân thủ
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

1. The role of the UK Corporate Governance Code

vHow about small and unlisted companies?
vBe encouraged to follow the Code as an example of ‘best
practice’.
vHow the Code can help boards discharge their duties in the
best interest of their company?
vEncouraging a whole company to accept their legal obligations
vEncouraging the scrutiny of corporate stewardship giám sát
vImposing certain checks and controls on executive directors but
without restricting the commercial enterprises aspect of business
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

1. The role of the UK Corporate Governance Code

vDisclosure statement: comply or explain
vUnder the Listing Rules, premium listed companies must make a
disclosure statement about the Code:
vReporting on how the company applies the main principles in the Code,
then either
vConfirming that it complies with the Code’s supporting principles and
provisions or, where it does not
vExplaining why it does not comply.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

vOverview
vThe Code contains five sections, each of which is set out as as
series of main principles that are supported by provisions.
v(i) Board leadership and company purpose
v(ii) Division of responsibilities
v(iii) Composition, succession and valuation
v(iv) Audit, risk and internal control
v(v) Remuneration
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.1. Board leadership and company purpose
vFocus on the overall role of the board
vAn effective and entrepreneurial board: to promote the long-term
sustainable success of the company, generating value for shareholders
and contributing to wider society.
vShould establish the company’s purpose values and strategy, which are
tương thích aligned with its culture. All directors must act with integrity, lead by
example and promote the desired culture.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.1. Board leadership and company purpose
vFocus on the overall role of the board
vShould ensure that the necessary resources are in place for the company
to meet its objectives and measure performance against them.
vShould establish a framework of prudent and effective controls, which
enable risk to be assessed and managed.
vShould ensure effective management with, and encourage participation
from, shareholders and stakeholders
vShould ensure the workforce policies and practices are consistent with
the company’s values and support its long-term sustainable success.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.1. Board leadership and company purpose
vProvisions (more detail about the actions)
vThe board should assess the basis on which the company generates and
preserves value over the long term.
vThe board should assess and monitor culture.
vThe Chair should seek regular engagement with major shareholders to
understand their views on governance and performance against the
strategy.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.1. Board leadership and company purpose
vProvisions (more detail about the actions)
vWhen 20% or more of votes have been cast against the board
recommendation for a resolution, the company should explain what
actions it intends to take to consult shareholders in order to understand
the reason behind the results.
vAn update on the views of shareholders should be updated no later than
six months after the shareholder meeting.
vThe board should then provide a final summary in the annual report,
explaining the impacts of the update on decisions of the board and the
resolutions.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.1. Board leadership and company purpose
vProvisions (more detail about the actions)
vThe board should understand the views of the company’s other key
stakeholders and describe in the annual report how their interests and the
matters set out in section 172 of the Companies Act 2006 have been
considered in board discussions and decision making.
vFor engagement with the workforce, one or a combination of the
following methods should be used:
vA director appointed from the workforce
vA formal workforce advisory panel
vA designated NED cử non-exercutive
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.1. Board leadership and company purpose
vProvisions (more detail about the actions)
vThere should be aẩnmeans for the workforce to raise concerns in
bảo mật confidence and anonymously. The board should routinely review this
danh

and reports arising from its operation. It should ensure that arrangements
are in place for the proportionate and independent investigation of such
matters and follow-up action.
vThe board should take action to identify and manage conflicts of
interest, including those resulting from significant shareholdings, and
ensure that the influences of third parties does not compromise or
override independent judgement.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.1. Board leadership and company purpose
vProvisions (more detail about the actions)
vWhere directors have concerns about the operation of the board or the
management of the company that cannot be resolved, their concerns
should be recorded in the board minutes.
vOn resignation, a NED should provide a written statement to the Chair, for
circulation to the board if they have any such concerns.
Question: According to the UK Corporate Governance Code, what are the
main things a board should do in order to provide effective and
entrepreneurial leadership for its company?
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.2. Division of responsibilities
v Focus on how the board should be organized and and
v The roles of the Chair and the executive and non-executive directors
vHow the board should be supported by the company secretary đại diện pháp lý
v To be an effective board, all the member know what is expected of their
role.
vIndependence of NED is also important for their objectivity and ability to
hold the executive directors to account of necessary.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.2. Division of responsibilities
vPrinciples
vThe Chair leads the board and is responsible for its overall effectiveness
in directing the company. They should demonstrate objective judgement
throughout their tenure and promote a culture of openness and debate.
In addition, the Chair facilities constructive board relations and the
effective contribution of all NEDs, and ensure that directors receive
accurate, timely and clear information.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.2. Division of responsibilities
vPrinciples
vThe board should include an appropriate combination of executive and
non-executive (independent non-executive) directors to avoid domination
of the board. There should be a clear division of responsibilities between
the leadership of the board and the executive leadership of the
company.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.2. Division of responsibilities
vPrinciples
vNEDs should have sufficient time to meet their board responsibilities.
They should provide constructive challenge, strategic guidance, offer
specialist advice and hold management to account
vThe board, supported by the company secretary, should ensure that it
has the policies, processes, information, time and resources it needs in
order to function effectively and efficiently.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.2. Division of responsibilities
vProvisions
vThe chair should be independent on appointment when assessed against
the circumstances set out in Provision 10. The roles of Chair and chief
executive should not be exercised by the same individual. A chief
executive should not become Chair of the same company.
vThe board should identify in the annual report each NED it considers to
be independent.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.2. Division of responsibilities
vProvisions
vThe board should identify in the annual report each NED it considers to
be independent.
vis or has been an employee of the company or group within the last five
years; không được là thành viên cty quan hệ kinh doanh trọng yếu
vhas, or has had within the last three years, a material business relationship
with the company, either directly or as a partner, shareholder, director or
senior employee of a body that has such a relationship with the company;
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.2. Division of responsibilities
vProvisions
vThe board should identify in the annual report each NED it considers to
be independent.
vHas received or receives additional remuneration from the company apart
from a director’s fee, participates in the company’s share option or a quyền mua cổ phiếu
performance-related pay scheme, or is a member of the company’s pension
scheme;
vHas close family ties with any of the company’s advisers, directors or senior
employees;
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.2. Division of responsibilities
vProvisions
vThe board should identify in the annual report each NED it considers to
be independent.
vHolds cross-directorships or has significant links with other directors through
involvement in other companies or bodies;
vRepresents a significant shareholder;
vHas served on the board for more than nine years from their date of their
first appointment. không làm quá 9 năm trong BOD
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.2. Division of responsibilities
vProvisions
vThe board should identify in the annual report each NED it considers to
be independent.
vAt least half of the board, excluding the Chair, should be NEDs whom the
board considers to be independent;
vThe board should appoint one of the independent NEDs to be the senior
independent director (SID) to provide a sounding board for the Chair and
serve as an intermediary for the one directors and shareholders. Led by the
SID, the NEDs should meet without the Chair present at least annually to
appraise the Chair’s performance, and on other occasions as necessary.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.2. Division of responsibilities
vProvisions
vThe board should identify in the annual report each NED it considers to
be independent.
vNEDs have a prime role in appointing and removing executive directors.
NEDs should scrutinize and hold to account the performance of management
and individual executive directors against agreed performance objectives.
The Chair should hold meetings with the NEDs without the executive
directors present.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.2. Division of responsibilities
vProvisions
vThe board should identify in the annual report each NED it considers to
be independent.
vThe responsibilities of the Chair, chief executive, SID, board and
committees should be clear, set out in writing, agreed by the board and
made publicly available. The annual report should set out the number of
meetings of the board and its committees, and the individual attendance by
directors.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.2. Division of responsibilities
vProvisions
vThe board should identify in the annual report each NED it considers to
be independent.
vWhen making new appointments, the board should consider other
demands on directors’ time. Prior to appointment, significant commitments
should be disclosed with an indication of the time involved. Additional
external appointments should not be undertaken without prior approval of
the board. Full-time executive directors should not take on more than one
non-executive directorships in an FTSE 100 company or other significant
appointment.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.2. Division of responsibilities
vProvisions
vThe board should identify in the annual report each NED it considers to
be independent.
vAll directors should have access to the advice of the company secretary, who
is responsible for advising the board on all governance matters. Both the
appointment and removal of the company secretary should be a matter of
the whole board.
Question: What are the Chair’s responsibilities in relation to running of the
board?
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.3. Composition, succession, and evaluation
vFocus on the work of the nomination committee to appointment
new directors. non-excutive

vExplain that all directors are subject to annual re-election

vThe board and its committees are subject to annual performance
vGREAT IMPORTANT to ensure right person placed in right position
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.3. Composition, succession, and evaluation
vPrinciples
vAppointments to the board should be subject to a formal, rigorous and
transparent procedure, and an effective succession plan should be
maintained for board and senior management. Both appointments and
succession plans should be based on merit and objective criteria and,
within this context, should promote diversity of gender, social and ethnic
backgrounds, cognitive and personal strengths.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.3. Composition, succession, and evaluation
vPrinciples
vThe board and its committees should have a combination of skills,
experience and knowledge. Consideration should be given to the length
of service of the board as a whole and membership regularly refreshed.
vAnnual evaluation of the board should consider its composition, diversity
and how effectively members work together to achieve objectives.
Individual evaluation should demonstrate whether each director
continues to contribute effectively.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.3. Composition, succession, and evaluation
vProvisions
vThe board should establish a nomination committee to lead the process
for appointments, ensure plans are in place for orderly succession to both
the board and senior management positions, and oversee the
development of a diverse pipeline for succession.
vA majority of members of the committee should be independent NEDs.
vAll directors should be subject to annual re-election.
vThe Chair should not remain in post beyond nine years from the date of
their first appointment to the board.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.3. Composition, succession, and evaluation
vProvisions
vOpen advertising and/or an external search consultancy should generally
be used for the appointment of the Chair and NEDs.
vThere should be a formal and rigorous annual evaluation of the
performance of the board, its committees, the Chair and individual
directors.
vThe Chair should act on the results of the evaluation by recognizing the
strengths and addressing any weaknesses of the board.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.3. Composition, succession, and evaluation
vProvisions
vThe annual report should describe the work of the nomination committee,
including:
vThe process used in relation to appointment, its approach to succession planning
and how both support developing a diverse pipeline;
vHow the board evaluation has been conducted, the nature and extent of an external
evaluator’s contact with the board and individual directors, the outcomes and
actions taken, and how it has or will influence board composition;
vThe policy on diversity and inclusion, its objectives and linkage to company strategy,
how it has been implemented and progress on achieving the objectives;
vThe gender balance of those in the senior management and their direct reports.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.4. Audit, risk and internal control
vTo support the integrity of financial statements by ensuring that
organizations have formal and transparent policies and procedure
in place to allow independent and effective internal and external
audit functions
vInternal controls are in place to manage risk
vMany stakeholders use financial statements => the financial
statements are robust and accurately represent financial position
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.4. Audit, risk and internal control
vPrinciples
vThe board should establish formal and transparent policies and procedures to
ensure the independence and effectiveness of internal and external audit
functions and satisfy itself on the integrity of financial and narrative statements.
vThe board should present a fair, balanced and understandable assessment of
the company’s position and prospects.
vThe board should establish procedures to manage risk, oversee the internal
control framework, and determine the nature and extent of the principal risks
the company is willing to take in order to achieve its long-term strategic
objectives.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.4. Audit, risk and internal control
vProvisions
vThe board should establish an audit committee of independent NEDs,
with a minimum membership of three, or in the case of smaller
companies, two. The Chair of the board should not be a member. The
board should satisfy itself that at least one member has recent and
relevant financial experience. The committee as a whole shall have
competence relevant to the sector in which the company operates.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.4. Audit, risk and internal control
vProvisions
vThe main roles and responsibilities of the audit committee should
include:
vMonitoring the integrity of the financial statements, and reviewing
significant financial reporting judgements;
vProviding advices and information to shareholders to assess the various
aspects of the company;
vReviewing the internal financial controls and internal controls and risk
management systems;
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.4. Audit, risk and internal control
vProvisions
vThe main roles and responsibilities of the audit committee should include:
vMonitoring and reviewing the effectiveness of the company’s internal audit
function;
vMaking recommendation to the board about the appointment, reappointment and
removal of the external auditor, approving the remuneration and terms of
engagement of the external auditors;
vReviewing and monitoring the external auditor’s independence and objectivity;
vReviewing the effectiveness of the external audit process, taking into consideration
relevant UK professional and regulatory requirements;
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.4. Audit, risk and internal control
vProvisions
vThe main roles and responsibilities of the audit committee should
include:
vDeveloping and implementing policy on the engagement of the external
auditor to supply non-audit services, ensuring there is prior approval of non-
audit services, considering the impact this may have on independence,
taking into account the relevant regulations and ethical guidance in this
regard; and reporting to the board on any improvement or action required;
vReporting to the board on how it has discharged its responsibilities.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.4. Audit, risk and internal control
vProvisions
vThe annual report should describe the work of the audit committee:
vThe significant issues that the audit committee considered relating to the
financial statements, and how these issues were addressed;
vAn explanation of how it has assessed the independence and effectiveness
of the external audit process and the approach taken to appointment or
reappointment of the external auditor, information on the length of tenure
of the current audit firm, when a tender was last conducted and advance
notice of any retendering plans;
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.4. Audit, risk and internal control
vProvisions
vThe annual report should describe the work of the audit committee:
vIn the case of a board not accepting the audit committee’s recommendation on the
external audit appointment, reappointment or removal, statement from the audit
committee explaining its recommendation and the reasons why the board has taken
a different position;
vWhere there is no internal audit function, and explanation of the absence, how
internal assurance is achieved, and how this affects the work of external audit;
vAn explanation of how auditor independence and objectivity are safeguard, if the
external auditor provides non-audit services.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.4. Audit, risk and internal control
vProvisions
vThe directors should explain in the annual report their responsibility for
preparing the annual report and accounts, and state that they consider the
annual report and accounts, taken as a whole, is fair, balanced and
understandable, and provides the information necessary for shareholders to
assess the company’s position, performance, business model and strategy.
vThe board should carry out robust assessment of the company’s emerging and
principal risks.
vThe board should monitor the company’s risk management and internal control
systems and, at least annually, carry out a review of their effectiveness and
report on that review in the annual report.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.4. Audit, risk and internal control
vProvisions
vIn annual and half-yearly financial statements, the board should state
whether it considers it appropriate to adopt the going concern basis of
accounting in preparing them and identify any material uncertainties to
the company’s ability to continue to do so over a period of at least 12
months from the date of approval of the financial statements.
vThe board should explain in the annual report how it has assessed the
prospects of the company.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.5. Remuneration
vFocus on the work of the remuneration committee to develop
policy on the remuneration of executive directors and how
remuneration should be set.
vIMPORTANT because:
vTo ensure that right remuneration for right performance
vBe aligned with company strategy and support the long-term success of
the business.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.5. Remuneration
vPrinciples
vRemuneration policies and practices should be designed to support strategy and
promote long-term sustainable success. Executive remuneration should be
aligned to company purpose and values and be clearly linked to the successful
delivery of the long-term strategy.
vA formal and transparent procedure for developing policy on executive
remuneration and determining director and senior management remuneration
should be established. No director should be involved in declining their own
remuneration outcome.
vDirectors should exercise independent judgement and discretion when
authorizing remuneration outcome, taking account of company and individual
performance, and wider circumstances.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.5. Remuneration
vProvisions
vThe board should establish a remuneration committee of independent
NEDs, with a minimum membership of three, or in the case of smaller
companies, two. In addition, the Chair of the board can only be a member
if they were independent on appointment and cannot Chair the
committee. Before appointment as Chair of remuneration committee, the
appointee should have served on a remuneration committee at least 12
months.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.5. Remuneration
vProvisions
vThe remuneration committee should have delegated responsibility for
determining the policy for executive director remuneration and setting
remuneration for the Chair, executive directors and senior management.
vThe remuneration of NEDs should be determined in accordance with the
Articles of Association or, alternatively, by the board. Levels of
remuneration for the Chair and all NEDs should reflect the time
commitment and responsibilities of the role. Remuneration for all NEDs
should not include share options or other performance-related elements.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.5. Remuneration
vProvisions
vProvision number 35 to 39: remuneration scheme
vWhen determining executive director remuneration policy and practices, the
remuneration committee should address the following:
vClarity
vSimplicity
vRisk
vPredictability
vProportionality
vAlignment to culture
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.5. Remuneration
vProvisions
vThere should be a description of the work of the remuneration
committee in the annual report, including:
vAn explanation of the strategic rationale for executive directors’
remuneration policies, structures, and any performance metrics;
vReasons why the remuneration is appropriate using internal and external
measures, including pay ratios and pay gaps;
vA description, with examples, of how the remuneration committee has
addressed the factors in Provision 40.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. Content of the UK Corporate Governance Code

v2.5. Remuneration
vProvisions
vThere should be a description of the work of the remuneration committee in
the annual report, including:
vWhether the remuneration policy operated as intended in terms of company
performance and quantum, and, if not, what changes are necessary;
vWhat engagement has taken place with shareholders and the impact this has had on
remuneration policy and outcomes;
vWhat engagement with the workforce has taken place to explain how executive
remuneration aligns with wider company pay policy;
vTo what extent discretion has been applied to remuneration outcomes and the
reasons why.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

3. The role of external audit

v3.1. What is an external audit?
vThe external audit reports on whether the financial statements
present a true and fair view of the company’s financial
performance and position.
vExternal auditors are appointed by the directors. Typically, the
external auditors are recommended by the audit committee, but
the appointment decision is then taken by the board as a whole.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

3. The role of external audit

v3.2. What does the audit opinion mean?
vShareholders often believe the external auditor’s opinion means
that the financial statements of the company are ‘correct’.
vIf the published financial statements are subsequently found to be
incorrect, shareholders then blame the auditor for:
vFailing to spot the problem
vLacking objectivity
vFalling to challenge the views of the company’s management about
accounting policies and the accounting treatment of certain items.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

3. The role of external audit

v3.2. What does the audit opinion mean?
vThe external auditors is not responsible for detecting fraud and
error. The responsibilities for preventing and detecting fraud and
error lies with:
vDirectors
vManagement
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

4. The role of internal audit

v4.1. What does the internal audit?
vAn independent part of the company which monitors the effective
operations of its internal control and risk management systems.
Internal audit is itself a key element of the company’s system of
internal control.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

4. The role of internal audit

v4.2. What does the internal audit do?
vAssessing how risks are identified, analyzed and managed
vAdvising management on embedding risk management processes into
business activities
vAdvising management to improving internal controls
vEnsuring that assets are being safeguarded
vEnsuring that operations are conducted effectively, efficiently and
economically in accordance with the company’s policies
vEnsuring that laws and regulations are complied with
vEnsuring that records and reports are reliable and accurate
vHelping management to detect or deter fraud
vHelping management to identify savings and opportunities
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

4. The role of internal audit

v4.3. The board’s audit committee should monitor and
review the effectiveness of the internal audit function:
vAppointing the head of internal audit
vEnsuring the function has sufficient resources
Ideally internal auditors should be able to confer privately
with the audit committee,
without the presence of management,
and should have direct access to any member of the board.