Operating and financial review abandoned

UK Government proposals to introduce a statutory requirement for listed companies to publish an Operating and Financial Review (OFR) have been abandoned, it was confirmed when amendments to the Company Law Reform Bill were published. Quoted companies will, though, be required to publish a Business Review – in compliance with European law – indicating the main trends and factors likely to affect the future development, performance, and position of the company’s business together with information regarding environmental impact, employees, and social and community relationships.

Auditors will be required to report on the consistency of the Directors’ Report with the annual accounts, but with no additional requirement to check for other inconsistencies. Companies will be exempted from disclosing in the Business Review information which is seriously prejudicial to its interests. There will be no statutory reporting standards for the Business Review.

ACCA chief executive Allen Blewitt strongly criticised the move, describing the Business Review as ‘a decidedly inferior reporting tool’. Debate on the OFR has now shifted to what should be required of companies under the Financial Reporting Council’s Combined Code and the International Accounting Standards Board’s Management Commentary.

Richard Martin, ACCA head of financial reporting, said: ‘Management Commentary of the type proposed by the IASB should be produced by all public interest entities to supplement the financial statements. Companies should consider wider performance measures and longer-term risks and consider carefully the level of corporate social responsibility that is both necessary and appropriate to them.’