A revised version of the Turnbull Guidance on internal control has been
published today by the Financial reporting Council, but despite the review
lasting over a year, few changes have been made to the original code.
The new guidance, based on the original review by Nigel Turnbull that came
out in 1999, will come into effect at the beginning of next year. It will
require boards to confirm that ‘necessary action has been taken or is being
taken to remedy and significant failings or weaknesses identified’ in the
internal control systems. It also encourages the inclusion of information in the
annual report to assist shareholders in understanding the company’s risk
‘Companies should not interpret our decision to make only limited changes to
the Turnbull guidance as a signal that there is nothing for boards to do,’ said
HSBC finance director Douglas Flint, who headed up the review group.
‘The risks that companies face change constantly. I hope that boards will
look critically at how they review their internal control systems, and consider
whether they can make more of the communication opportunity afforded by the
internal control statement in their annual reports’.
Last month, ICAS stated its objection to the proposed guidance that was
issued saying the interpretations of phrases such as ‘necessary action’ and
‘significant failings or weaknesses’ were highly subjective and would lead to
unnecessary speculation by stakeholders. However, the FRC said the vast majority
of respondents to the consultation agreed with the proposals
Other changes include the addition of a new preface to encourage boards to
continually review their application of the guidance, a re-ordered introduction,
updated references to the combined code and listing rules, the removal of
guidance on internal audit (supplanted by the Smith guidance), and clarification
that directors should apply the same standard of care when reviewing internal
control effectiveness as when exercising their general duties.
FRC chairman Sir Bryan Nicholson said the body would continue to monitor what
use companies and investors are making of the internal control statement.
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