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The last element of the UK’s Operating and Financial Review regime was put in place last month with the publication of a reporting standard by which companies now have to abide.
The final standard, produced by the Financial Reporting Council’s Accounting Standards Board, differs little from a draft circulated earlier this year (EP6, issue 8, p9). However, its publication now enables the 1300 quoted businesses affected to decide what to put in – and leave out of – their OFRs. Companies will have to produce the first of these forward-looking statements on business strategy and risks from 1 April 2006, relating to the financial year beginning on or after 1 April 2005. From April 2007 the FRC’s Financial Reporting Review Panel, which oversees compliance with financial accounting standards, will include the OFR in its remit.
The ASB says the reviews should be directed primarily at shareholders, but directors should consider including information of interest to other stakeholders such as suppliers, employees, customers and ‘society more widely’. It also says companies should consider providing information, backed up by performance indicators, on ‘the impact of the business on the environment, its employees, and on social and community issues’ – in particular outlining company policies in those areas and ‘the extent to which [they] have been successfully implemented’.
The ASB favours a broad range of disclosures not confined only to financial matters. An annex offers guidance on some non-financial kpis by way of example, including a new one on waste that was not in the draft (see box).
David Loweth, board secretary at the ASB, told EP the most significant change to the draft had been a decision to focus the reviews on matters relevant to ‘members’ (that is, shareholders) rather than the more general legal category of ‘investors’. Business had argued that directing the OFR to all investors risked extending the legal liability of directors. Loweth said the ASB did not want OFRs ‘in any sense [to] become a box-ticking exercise’.
Rob Lake, head of SRI at Henderson Global Investors, said the final standard would enable companies to plan how their OFRs fit in with other types of report. ‘This was the last piece in the jigsaw. What we’ll be really interested in seeing from companies is integration and coherence across the OFR, the remuneration report and corporate governance reporting.’
The final standard, produced by the Financial Reporting Council’s Accounting Standards Board, differs little from a draft circulated earlier this year (EP6, issue 8, p9). However, its publication now enables the 1300 quoted businesses affected to decide what to put in – and leave out of – their OFRs. Companies will have to produce the first of these forward-looking statements on business strategy and risks from 1 April 2006, relating to the financial year beginning on or after 1 April 2005. From April 2007 the FRC’s Financial Reporting Review Panel, which oversees compliance with financial accounting standards, will include the OFR in its remit.
The ASB says the reviews should be directed primarily at shareholders, but directors should consider including information of interest to other stakeholders such as suppliers, employees, customers and ‘society more widely’. It also says companies should consider providing information, backed up by performance indicators, on ‘the impact of the business on the environment, its employees, and on social and community issues’ – in particular outlining company policies in those areas and ‘the extent to which [they] have been successfully implemented’.
The ASB favours a broad range of disclosures not confined only to financial matters. An annex offers guidance on some non-financial kpis by way of example, including a new one on waste that was not in the draft (see box).
David Loweth, board secretary at the ASB, told EP the most significant change to the draft had been a decision to focus the reviews on matters relevant to ‘members’ (that is, shareholders) rather than the more general legal category of ‘investors’. Business had argued that directing the OFR to all investors risked extending the legal liability of directors. Loweth said the ASB did not want OFRs ‘in any sense [to] become a box-ticking exercise’.
Rob Lake, head of SRI at Henderson Global Investors, said the final standard would enable companies to plan how their OFRs fit in with other types of report. ‘This was the last piece in the jigsaw. What we’ll be really interested in seeing from companies is integration and coherence across the OFR, the remuneration report and corporate governance reporting.’
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