Since the introduction of the UK Governance Code and the Federation’s code there is a general principle that has applied – comply with the code or explain where and why you do not comply. Transparency is critical to the reputation of the organisation and the housing sector as a whole.
The annual report
The annual report is a key tool for publishing the results of an organisation and should cover a spectrum of issues focusing on performance. It is important that associations consider the most appropriate and relevant platforms for informing customers, shareholders, investors and other stakeholders.
Key contents of the report
- Board performance: The chair should state in the annual report how performance evaluation of the board, its committees and its individual directors has been conducted and the core findings and recommendations that have flowed from these vital processes.
- Directors' opinions: The directors should state that they consider the annual report and accounts, taken as a whole, to be fair, balanced and understandable and providing the information necessary for shareholders, stakeholders and investors to assess the association’s performance, business model and strategy. They should also give a statement of how the board operates, including a high level statement of which types of decisions are to be taken by the board and which are to be delegated to management.
Board directors should report at least annually in their financial statements that the business is a going concern, clearly setting out their supporting assumptions or qualifications as necessary. There should be also a separate statement by the auditor about their reporting responsibilities.
The annual report provides shareholders, investors and other stakeholders with a range of relevant and timely information. This should include at a minimum:
- the names of the chair, the deputy chair (where there is one), and the Chief Executive, the Senior Independent Director and the chairs and members of the board committees;
- the number of meetings of the board and those committees and individual attendance by board directors
- an explanation from the board directors of their responsibility for preparing the accounts and a statement that they consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders and external stakeholders to assess and provide the company’s performance, business model and strategy. There should also be a statement by the auditor about their reporting responsibilities
- a value for money statement and an explanation of the basis on which the association generates or preserves value over the longer term (the business model) and the strategy for delivering the objectives of the company
- a statement from the board that the business is a going concern, with supporting assumptions or qualifications as necessary
- a statement from the board that it has conducted a review of the effectiveness of the company’s risk management and internal controls systems
- a statement setting out how internal audit function is carried out and any significant findings and, if necessary, the reasons for the absence of such a function
- a statement from the board regarding compliance with its chosen code of governance
- a statement from the board regarding its overall compliance with the Regulatory Standards and a particular focus should be given to demonstrating the organisations approach and actions to ensure it embraces the value for money challenge set by the Homes and Communities Agency.
Where the association has chosen to pay its board members they should fully disclose this in the annual report. The following information should be made available (which may be met by placing the information on a website that is maintained by or on behalf of the association):
- the terms of reference of the nomination, audit and remuneration committees, explaining their role and the authority delegated to them by the board; and
- the terms and conditions of appointment of non-executive directors
The board should use the AGM or other appropriate means to communicate with shareholders, investors and other stakeholders and to encourage their participation.
Other information to consider for an annual report
In addition to the above, and depending on the complexity and size of the organisation, the annual report may also consider including the following information:
- an explanation of the basis on which the company generates or preserves value over the longer term (the business model)
- the strategy for delivering the objectives of the company
- the outcome of their review of the effectiveness of the company’s risk management and internal control systems, covering all material controls, including financial, operational and compliance
A separate section of the annual report could also describe the work of the audit committee in discharging its responsibilities. The report should include:
- the significant issues that the committee considered in relation to the financial statements, and how these issues were addressed;
- an explanation of how it has assessed the effectiveness of the external audit process and the approach taken to the appointment or reappointment of the external auditor
- if the external auditor provides non-audit services, an explanation of how auditor objectivity and independence is safeguarded.
In addition the report could contain a separate section describing the work of the nomination committee, including the process it has used in relation to board appointments; a description of the board’s policy on diversity, including gender; any measurable objectives that it has set for implementing the policy and progress on achieving the objectives. An explanation should be given if neither external search consultancy nor open advertising has been used in the appointment of a chairman or a non-executive director. Where an external search consultancy has been used it should be identified and a statement made as to whether it has any other connection with the company.
Other things to consider including
- any changes to the other significant commitments of the chair during the year where the board does not accept the audit committee’s recommendation on the appointment, reappointment or removal of an external auditor, a statement from the audit committee explaining the recommendation and the reasons why the board has taken a different position.
- a description of the work of the remuneration committee
- where remuneration consultants are appointed they should be identified and a statement made as to whether they have any other connection with the association
- the steps the board has taken to ensure that members of the board, and in particular the non-executive directors, develop an understanding of the views of major shareholders, stakeholders and investors about the association.