Turnbull Guidance

Turnbull Guidance
Name	Turnbull Guidance
Caption	Corporate governance guidance for internal control
Type	Guidance document
Released	1999
Author	Institute of Chartered Accountants in England and Wales
Jurisdiction	United Kingdom
Subject	Internal control, corporate governance

Turnbull Guidance is a corporate governance and internal control guidance originally issued in 1999 by the Institute of Chartered Accountants in England and Wales to assist boards of directors and audit committees of public limited companys in assessing and reporting on systems of internal control. It supplements provisions in the Combined Code on Corporate Governance, addresses requirements introduced by the Companies Act 1985 and later the Companies Act 2006, and interfaces with reporting regimes such as International Financial Reporting Standards and United Kingdom Company Law. The guidance has been referenced by regulators including the Financial Reporting Council and professional bodies such as the Association of Chartered Certified Accountants.

Background and Purpose

The guidance was developed in the wake of high-profile corporate failures and regulatory reviews exemplified by cases like Barings Bank and Enron Corporation that prompted debates in forums including the Cadbury Report, the Greenbury Report, and the Hampel Report. Its purpose was to provide pragmatic advice to executives, non-executive directors and audit committees of entities subject to the Listing Rules of London Stock Exchange and to support compliance with disclosure obligations under the UK Listing Authority. It sought to translate broad principles from the Cadbury Report and the Combined Code on Corporate Governance into operational steps for risk assessment, control design and management assertion.

Scope and Applicability

Turnbull Guidance applies primarily to companies required to make a statement on internal control in their annual report under the Combined Code on Corporate Governance and related listing requirements enforced by the Financial Services Authority (now subsumed into the Prudential Regulation Authority and the Financial Conduct Authority). It is relevant to boards of public companys, subsidiaries of multinational groups such as BP plc, GlaxoSmithKline, HSBC Holdings plc and to entities preparing financial statements under International Accounting Standards Board pronouncements including IAS 1 and IFRS 7. While aimed at large listed entities, professional advisers from organisations like the Institute of Chartered Accountants in England and Wales and the Institute of Internal Auditors have adapted its principles for use by charities such as Oxfam and public sector bodies like NHS England.

Key Principles and Requirements

The guidance articulates several core principles structured around risk identification, control environment, information and communication, monitoring and review, and corrective action. Boards are expected to conduct risk assessments similar in intent to COSO frameworks and to ensure that internal control systems enable reliable financial reporting consistent with frameworks promulgated by the International Accounting Standards Board and the Financial Reporting Council. It requires involvement of key actors including the chair, chief executive, finance director, audit committee and chief risk officer, and references roles commonly held in firms like Barclays, Rolls-Royce Holdings, Lloyds Banking Group and Royal Dutch Shell. The guidance emphasises proportionate controls, segregation of duties, business continuity arrangements relevant to entities such as BT Group and Network Rail, and alignment with external assurance providers including Big Four accounting firms such as PricewaterhouseCoopers, Deloitte, Ernst & Young and KPMG.

Implementation and Reporting Guidance

Practical steps recommended include documentation of key controls, preparation of risk registers, periodic control testing, internal audit workplans, and board-level disclosure statements. Companies were advised to prepare an internal control statement for inclusion alongside reports on compliance with the Combined Code, the annual report and accounts submitted to shareholders of companies like Tesco plc and Sainsbury's. The guidance outlines the role of external auditors from firms such as Grant Thornton in evaluating management's processes and supports coordination with regulators including the Financial Reporting Council and the Accounting Standards Board (United Kingdom). It suggests templates for board minutes, audit committee charters and executive attestations used in practice at organisations like Marks & Spencer and Vodafone Group.

Impact and Criticism

Turnbull Guidance influenced corporate reporting culture in the United Kingdom and abroad, informing similar instruments referenced by bodies such as the European Commission and the Organisation for Economic Co-operation and Development. Supporters cite improvements in risk governance at firms like Imperial Brands and Smith & Nephew, and uptake by professional networks including the Chartered Institute of Management Accountants. Critics argue the guidance can encourage boilerplate disclosures, impose compliance burdens on small and medium enterprises such as members of the Federation of Small Businesses, and overlap with requirements from the Sarbanes-Oxley Act in transnational corporations listed on both London Stock Exchange and New York Stock Exchange. Academic commentators from institutions like London School of Economics, Oxford University and University of Cambridge have debated its effectiveness relative to principles in the COSO ERM and outcomes measured by regulators like the Financial Conduct Authority.

Revisions and Related Frameworks

Subsequent clarifications and updates were issued as corporate governance codes evolved, and the guidance has been mapped against the later editions of the Combined Code on Corporate Governance and the UK Corporate Governance Code. It sits alongside complementary frameworks such as COSO Internal Control — Integrated Framework, the Turner Review (distinct regulatory reviews), and the International Standard on Auditing series issued by the International Auditing and Assurance Standards Board. Professional bodies including the Institute of Chartered Accountants in England and Wales and the Institute of Directors have published supplemental materials to aid implementation, while regulators like the Financial Reporting Council continue to reference its principles in guidance and enforcement activity.

Category:Corporate governance