U.K. Turnbull Guidance Will Be Reviewed, Updated

The U.K.-based Financial Reporting Council announced recently that it would review—and likely update—the 1999 Turnbull Guidance.

The 14-page "Turnbull Report," published in September 1999 by the Institute of Chartered Accountants in England and Wales, includes guidance for implementing sound internal controls for U.K. companies listed on the London Stock Exchange.

Though the report is widely regarded as a "best practices" standard, it is also considered out-of-date since the 2002 passage of Sarbanes-Oxley.

In addition, many argue that the recommendations are neglected or ignored by U.K. companies. A 2003 report from auditor Grant Thornton noted that over half of the 350 largest companies on the London Stock Exchange failed to comply with the minimum recommendation of the Turnbull Report.

The report requires companies to identify, evaluate and manage their significant risks, and to assess the effectiveness of the related internal control system. Boards of directors are called on to review reports "on the effectiveness of the system of internal control in managing key risks," and to undertake annual assessments.

Flint

The review, which commences later this year, is expected to add a new obligation for auditors to examine a company’s internal controls and risk management, bringing the guidance more in line with SOX Section 404.

Douglas Flint, group finance director of HSBC Holdings, will chair the review. “Having been part of the team that developed the Turnbull guidance,” said Flint, “I am delighted to have been asked to lead this review.”

Flint's review team will include GlaxoSmithKline CFO John Coombe, Reuters General Counsel Rosemary Martin and others, including Hermes Pension Management CEO Tony Watson.

The team will report to the Financial Reporting Council, which will be responsible for approving any revisions to the guidance. The FRC is an independent regulator that sets, monitors and enforces accounting and auditing standards in the U.K.

Meetings will begin this week to decide how the review will be conducted, and changes are expected to be made in time for accounting periods beginning on or after Jan. 1, 2006.