• acknowledge that they are responsible for securing the company’s compliance with its relevant obligations;
• draw up a compliance policy statement setting out what are, in the directors’ opinion, appropriate policies regarding compliance with relevant obligations;
• put in place appropriate structures or arrangements to secure material compliance; and
• conduct a review, during the period, of those arrangements and structures.
These obligations follow the comply or explain principle. Whilst this new requirement does not impose any higher standards of compliance than currently exist, management must be in a position to actively demonstrate compliance to their Directors, to enable them to make the appropriate attestation within the Directors’ Report of the financial statements for periods commencing on or after 1st June 2015.
Relevant obligations
Directors must be satisfied that the company has appropriate structures/arrangements to secure material compliance with relevant obligations. The relevant obligations are all of the company’s tax obligations as well as a number of company law provisions (Category 1 & 2 offences, serious market abuse offence and serious prospectus offence).
Implications
Work needs to be done to achieve compliance with these new requirements including engagement with the Board to raise their awareness of these new obligations. Companies should be reviewing their corporate policy suite to determine their adequacy to support the DCS. While preparation of a compliance policy statement may be relatively straightforward, the implementation and/or validation of appropriate structures and arrangements to secure material compliance is likely to be more challenging. This will require a clear articulation of the 'compliance universe' – those tax obligations and company law provisions – relevant to the operations of the company. Processes supporting these obligations will then need to be assessed and documented for the following:
1. To determine the adequacy of controls implemented to secure material compliance; and
2. To demonstrate to Directors that appropriate structures/arrangements are in place to secure material compliance.
Any gaps identified at this stage will have to be remediated and it is likely that existing controls will require enhancement or new controls will have to be implemented to ensure material compliance is secured. Finally, these processes and controls will require review sufficiently early in the accounting period to facilitate any such remediation required to ensure their operating effectiveness over the period.
Conclusion
The introduction of the Directors’ Compliance Statement has undoubtedly raised the bar. To date, companies have been expected to comply with Company Law and Tax obligations, now they must be able to demonstrate compliance or explain why not.