HSBC

UK Corporate Governance Code

Corporate governance has faced immense scrutiny recently following the high-profile collapses of BHS in 2016 and Carillion in January 2018, with MPs, the media and the public blaming the actions of the directors and auditors and all asking the same question… where was the board?

MPs, shareholders and the public have also been asking how effective the Financial Reporting Council’s (FRC) Corporate Governance Code has been in deterring poor corporate governance at the UK’s largest companies, following a raft of corporate failures. In July 2018 the FRC released a new UK Corporate Governance Code, (the Code) for listed companies in the UK. It also issued an update on its Guidance on Board Effectiveness. The Code is applicable to all companies with a premium listing, whether incorporated in the UK or elsewhere.

The new Code applies to accounting periods beginning on or after 1 January 2019, so with that in mind, this Common Practices report looks at how companies have been reporting on the current Code. We look at some good examples of reporting and look at the “explanations” made regarding compliance with the Code. We also discuss what’s new in the 2018 Code to enable readers to prepare for the upcoming changes.

The annual reports of 25 UK listed companies with year-ends between 31 December 2017 and 30 September 2018 were selected at random for review, across a range of industries. The full list of sample companies detailing company name, period end, auditor and industry classification can be found at the end of this report.

New standard disclosure - IFRS 16 "Leases"

This report revisits the findings of the CR Emerging Issues Report "Disclosure of the impacts of IFRS 16 "Leases", and assesses 20 companies with 31 December 2017 year ends, to understand if some of the trends of the previous report are repeated. After the last report, we expected to see more companies early adopting, as well as more providing qualitative commentary on their expected materiality position post-implementation. We will assess whether this is the case. 16 of the 20 companies reviewed were in the original sample.

New standard disclosure - IFRS 15

IFRS 15 Revenue from Contracts with Customers (IFRS 15) is one of two major new standards being applied from financial periods beginning on or after 1 January 2018 (the other being IFRS 9 Financial Instruments). In the years leading up to this, there has been an increased focus by the Financial Reporting Council (FRC) on the disclosures setting out the impact of forthcoming accounting standards in the financial statements, as required by IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (IAS 8).

The FRC commented on these disclosures in its Annual Review of Corporate Reporting for the 2016-17 year-ends (annual review), and noted in its year-end advice letter to audit committee chairs and finance directors (FRC advice letter) (attached as an appendix to the report), that it expected to see a ‘step change’ in the quality of the disclosures assessing the impact of new accounting standards in the 2017-18 financial statements.

This report analyses the disclosures assessing the impact of IFRS 15 which have been included in the consolidated financial statements of 20 UK listed companies selected at random with a focus on industries where IFRS 15 has most impact.

Disclosure of the impacts of IFRS 16 "Leases"

IFRS 16 “Leases” will fundamentally change accounting by lessees as it requires assets previously off balance sheet under operating lease arrangements to be brought on balance sheet as is currently the case for finance leased assets. As a result on application companies will recognise both additional assets and additional liabilities. Consequently there will also be knock on effects in the income statement as operating lease charges are replaced by a depreciation charge and a finance expense. This report analyses the financial statements of a range of companies to firstly establish whether there has been any early adoption and secondly to establish what companies are disclosing in respect of IFRS 16 and its future impacts.

Operating Lease disclosures under IFRS

This report sets out our findings in respect of a review of the operating lease disclosures when acting as lessee of 35 companies listed on the London stock exchange. We consider a number of points including the disclosure, as currently governed under IFRS by IAS 17 “Leases”, of total future minimum lease payments focusing on the assets identified and the time periods presented; disclosure of minimum sublease payments expected to be received; disclosure of lease and sublease payments recognised in the period; and disclosure of the general terms of significant leasing arrangements including contingent rent payable basis, the existence and terms of renewal or purchase options and escalation clauses and restrictions imposed by lease arrangements such as those concerning dividends, additional debt and further leasing. 

Financial instruments - HSBC Holding plc

Period End: 
31 December 2014
Period End Date: 
2014-12-31
Listing Status: 
FTSE 100, S&P Europe 350
ICB Industry Classification: 
8355 Banks
Auditor: 
KPMG

Financial instruments - HSBC Holding plc

Period End: 
31 December 2014
Period End Date: 
2014-12-31
Listing Status: 
FTSE 100, S&P Europe 350
ICB Industry Classification: 
8355 Banks
Auditor: 
KPMG

Capital management - HSBC

Period End: 
31 December 2013
Period End Date: 
2013-12-31
Listing Status: 
FTSE 100, S&P Europe 350
ICB Industry Classification: 
8355 Banks
Auditor: 
KPMG