“The Higgs Report sets out guidance for non-executive directors and chairmen and made proposals for the Combined Code to require a greater proposition of independent, better informed individuals on the board ,greater transparency and accountability in the boardroom, formal performance appraisals , and closer relationship between non executive directors and shareholders” .
The Smith Report refers to the basic issues of the audit committee which is responsible for the support of the independence of the auditors and also to keep the decency of the financial issues of the company.
“Under the UK Companies Act 1985, directors are required to prepare financial statements that give a “true and fair view” and for those financial statements to be independently audited.
External auditors will need to obtain a sufficient understanding of a company’s control environment and activities to be able to assess the risks of material misstatement in those financial statements” .
Many companies which appeared to work properly, such as BCCI, Polly Peck and the Maxwell Group, collapsed and this raised questions about the accountability processes in the UK.
In general the public was suspicious towards actions by the large corporations.
The most recent version of the Combined Code is that of 2010.
It applies only to public listed companies and is not binding but if the companies do not comply with the Code, they must give an explanation of non-compliance. Firstly, in relation to the board of directors the main principle set out in the Code is that in every company there should be an efficient and helpful board which will have the responsibility for company’s success .
The corporate governance structure refers to the allocation of rights and responsibilities of the board, managers, shareholders and other stakeholders, and points out the rules and procedures necessary for the decisions taken in relation to corporate issues.
It also incorporates the organization’s strategic response to risk” .