Resilience Statement: Companies will need to set out how they are managing their principal risks and building or maintaining resilience over the short, medium and longer term.
The Resilience statement, which will form part of the Strategic report, will require companies to:
- disclose the chosen period for the short term and medium term analysis. The long-term period will not need to be disclosed
- set out the principal risks that threaten the business in the short and medium term, along with information on risk likelihood, impact, mitigating action, amongst others. In assessing principal risks, companies will need to consider several specified matters including areas of dependency, digital security risks, cyber security and the impact of climate-related and sustainability-related risks
- confirm that at least one reverse stress test has been carried out and disclose a summary of the reverse stress test and mitigating actions unless this information will be seriously prejudicial to the company’s interests
- summarise the long-term trends or factors which could significantly threaten the company’s business beyond medium term, along with estimated timings and discussions of how these will be managed
Distributable reserves and distribution policy:
Companies will need to disclose, in the notes to the accounts:
- the amounts of distributable reserves, or a minimum figure, at the beginning and the end of the reporting period
- a summary of changes during the reporting period and
- for public companies, the effect of the net asset restriction.
The distribution policy, which will be part of the Directors’ report, will explain the plan for dividends and share repurchases over the short and medium term as defined in the Resilience statement, including the factors and risks relevant to implementing and sustaining the policy.
The draft changes to the Companies Act do not require explicit statements by directors confirming the legality of proposed dividends and any dividends paid in year as was initially set out in the proposed reforms. Instead, the directors will need to explain how they have considered the level of distributable profits when recommending a dividend.
Material Fraud statement: The Directors will be required to include a material fraud statement in the Directors’ report setting out:
- their assessment of the risk of material fraud to the company’s business operations including how the company’s susceptibility to material fraud was assessed and the types of material fraud that were considered
- the main measures in place or any future measures that will be set up to prevent and detect the occurrence of material fraud
Both fraud and ‘material’ are defined. Fraud is considered material when its nature or magnitude could be expected to influence the decisions which a reasonable shareholder would take in connection with its shareholding in the company.
Audit and Assurance policy: This policy, which will be part of the Directors’ report, will set out how the company is currently obtaining assurance and how it plans to obtain assurance over its annual reports and accounts, including voluntary disclosures, over the next three years.
More specifically, the policy will explain the following in relation to the annual report and accounts:
- the internal audit and assurance capabilities and the three-year plan for strengthening these capabilities
- what external assurance, if any, the company intends to seek in the next three years beyond the statutory audit
- whether, and if so how, the company intends to seek external assurance over some or all of the company’s Resilience statement, and the effectiveness of the company’s internal controls over financial reporting
Companies will also need to provide an annual update on how the audit and assurance policy has been implemented and any updates made during the reporting period.