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DTR 7.1 Audit committees

Audit committees and their functions

DTR 7.1.1 R

1An issuer must have a body or bodies4 responsible for performing the functions set out in DTR 7.1.3 R.4

DTR 7.1.1A R
  1. (1)

    4A majority of the members of the relevant body must be independent.

  2. (2)

    At least one member of the relevant body must have competence in accounting or auditing, or both.

  3. (3)

    The members of the relevant body as a whole must have competence relevant to the sector in which the issuer is operating.

[Note: article 39(1) of the Audit Directive]

DTR 7.1.2 G

The requirements for independence and competence in accounting and/or auditing may be satisfied by the same members4 or by different members of the relevant body.

DTR 7.1.2A R

4The chairman of the relevant body must be:

  1. (1)

    independent; and

  2. (2)

    appointed by the members of the relevant body or by the administrative or supervisory body of the issuer.

[Note: article 39(1) of the Audit Directive]

DTR 7.1.3 R

An issuer must ensure that, as a minimum, the relevant body must:

  1. (1)

    monitor the financial reporting process and submit recommendations or proposals to ensure its integrity4;

  2. (2)

    monitor the effectiveness of the issuer’s internal quality control4 and risk management systems and, where applicable, its internal audit, regarding the financial reporting of the issuer, without breaching its independence4;

  3. (3)

    monitor the statutory audit of the annual and consolidated financial statements, in particular, its performance, taking into account any findings and conclusions by the Financial Reporting Council under article 26(6) of the Audit Regulation4;

  4. (4)

    review and monitor the independence of the statutory auditor in accordance with paragraphs 2(3), 2(4), 3 to 8 and 10 to 12 of Schedule 1 to the Statutory Auditors and Third Country Auditors Regulations 2016 (SI 2016/649) and article 6 of the Audit Regulation, and in particular the appropriateness of the provision of non-audit services to the issuer in accordance with article 5 of the Audit Regulation4;

  5. (5)

    inform the administrative or supervisory body of the issuer of the outcome of the statutory audit and explain how the statutory audit contributed to the integrity of financial reporting and what the role of the relevant body was in that process; and4

  6. (6)

    except when article 16(8) of the Audit Regulation is applied, be responsible for the procedure for the selection of statutory auditor(s) and recommend the statutory auditor(s) to be appointed in accordance with article 16 of the Audit Regulation.4

[Note: article 39(6) of the Audit Directive]4

DTR 7.1.4 R

[deleted]4

DTR 7.1.5 R

An4issuer must make a statement available to the public disclosing which body carries out the functions required by DTR 7.1.3 R and how it is composed.

[Note: article 39(4)4 (part) of the Audit Directive]

DTR 7.1.6 G

An issuer may include the statement required by DTR 7.1.5 R in any statement it is required to make under DTR 7.2 (Corporate governance statements).

DTR 7.1.7 G

In the FCA's view, compliance with provisions A.1.2, C.3.1, C.3.2, C.3.3 and C.3.83 of the UK Corporate Governance Code2 will result in compliance with DTR 7.1.1 R to DTR 7.1.5 R.

3 2

DTR 7.2 Corporate governance statements

DTR 7.2.1 R

An issuer to which this section applies must include a corporate governance statement in its directors’ report. That statement must be included as a specific section of the directors’ report and must contain at least the information set out in DTR 7.2.2 R to DTR 7.2.7 R and, where applicable, DTR 7.2.10 R.

DTR 7.2.2 R

The corporate governance statement must contain a reference to the following, where applicable4:

  1. (1)

    the corporate governance code to which the issuer is subject; 4

  2. (2)

    the corporate governance code which the issuer may have voluntarily decided to apply; and4

  3. (3)

    all relevant information about the corporate governance practices applied over and above 4the requirements of 4national law.

[Note: article 20(1)(a) first paragraph of the Accounting Directive4]

DTR 7.2.3 R
  1. (1)

    An issuer which is complying with DTR 7.2.2 R (1) or DTR 7.2.2 R (2) must:

    1. (a)

      state in its directors’ report where the relevant corporate governance code is publicly available; and

    2. (b)

      where 4it departs from that corporate governance code, explain which parts of the corporate governance code it departs from and the reasons for doing so.

  2. (2)

    Where DTR 7.2.2 R (3) applies, the issuer must make details of 4its corporate governance practices publicly available and state in its directors’ report where they can be found.

  3. (3)

    If an issuer has decided not to refer to 4any provisions of a corporate governance code referred to under DTR 7.2.2 R (1) and DTR 7.2.2 R (2), it must explain its reasons for that decision.

[Note: article 20(1)(a) second paragraph and article 20(1)(b) of the Accounting Directive4]

DTR 7.2.4 G

A listed company which complies with LR 9.8.6R (6) (the comply or explain rule in relation to theUK Corporate Governance Code1) will satisfy the requirements of DTR 7.2.2 R and DTR 7.2.3 R.

1
DTR 7.2.5 R

The corporate governance statement must contain a description of the main features of the issuer's internal control and risk management systems in relation to the financial reporting process.

[Note: article 20(1)(c) of the Accounting Directive4]

DTR 7.2.6 R

The corporate governance statement must contain the information required by paragraph 13(2)(c), (d), (f), (h) and (i) of Schedule 7 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410) (information about share capital required under Directive 2004/25/EC (the Takeover Directive)) where the issuer is subject to the requirements of that paragraph.

[Note: article 20(1)(d) of the Accounting Directive4]

DTR 7.2.7 R

The corporate governance statement must contain a description of the composition and operation of the issuer's administrative, management and supervisory bodies and their committees.

[Note: article 20(1)(f) of the Accounting Directive4]

DTR 7.2.8 G

In the FCA's view, the information specified in provisions A.1.1, A.1.2, B.2.4,1C.3.3, C.3.8 and D.2.13 of the2UK Corporate Governance Code1 will satisfy the requirements of DTR 7.2.7 R.

1 1 1 2 2 1
DTR 7.2.8A R
  1. (1)

    5The corporate governance statement must contain a description of:

    1. (a)

      the diversity policy applied to the issuer’s administrative, management and supervisory bodies with regard to aspects such as, for instance, age, gender, or educational and professional backgrounds;

    2. (b)

      the objectives of the diversity policy in (a);

    3. (c)

      how the diversity policy in (a) has been implemented; and

    4. (d)

      the results in the reporting period.

  2. (2)

    If no diversity policy is applied by the issuer, the corporate governance statement must contain an explanation as to why this is the case.

[Note: article 20(1)(g) of the Accounting Directive]

DTR 7.2.8B G

5 DTR 7.2.8AR does not apply to an issuer which qualifies as a small or medium company under DTR 1B.1.7R.

DTR 7.2.9 R

An issuer may elect that, instead of including its corporate governance statement in its directors’ report, the information required by DTR 7.2.1 R to DTR 7.2.7 R may be set out in4:

  1. (1)

    4a separate report published together with and in the same manner as its annual report4; or

  2. (2)

    a4 document publicly available on the issuer's website to which reference is made in the directors’ report4.

    4

4Under (1) or (2), the corporate governance statement must contain the information required by DTR 7.2.6R or a reference to the directors’ report where that information is made available.

[Note: article 20(2) of the Accounting Directive4]

DTR 7.2.10 R

Subject to DTR 7.2.11 R, an issuer which is required to prepare a group directors’ report within the meaning of section 415(2) of the Companies Act 2006 must include in that report a description of the main features of the group’s internal control and risk management systems in relation to the financial reporting process for the undertakings included in the consolidation, taken as a whole4. In the event that the issuer presents its own annual report and its consolidated annual report as a single report, this information must be included in the corporate governance statement required by DTR 7.2.1 R.

[Note: article 29(2)(b) of the Accounting Directive4]

DTR 7.2.11 R
  1. (1)

    4An issuer that elects to include its corporate governance statement in a separate report as permitted by DTR 7.2.9R(1) must provide the information required by DTR 7.2.10R in that report.

  2. (2)

    4An issuer that elects to include its corporate governance statement in a document publicly available on the issuer's website to which reference is made in the directors’ report as permitted by DTR 7.2.9R(2) must provide the information required by DTR 7.2.10R in that document.