Originally published 26 November 2004

The DTI has announced how it proposes to proceed with regulations to require quoted companies to publish an operating and financial review ("OFR"). This follows its consultation and draft regulations on the subject in May 2004.

In a written statement, laid in the House of Commons on 25 November 2004, Patricia Hewitt confirmed that the scope of the OFR would remain as set out in the draft regulations and no changes of substance would be made to the objectives and content of the OFR. This will mean that UK incorporated companies that are UK, EU or Nasdaq/NYSE listed (but not AIM listed) will be required to publish an OFR.

Key points:

  • the date the regulations will come into effect has been put back three months to financial years commencing on or after 1 April 2005

  • the Financial Reporting Review Panel's role in administrative enforcement of the OFR has been put back to one year after the regulations come into effect. This means that the FRRP will only start looking at OFRs prepared for financial years commencing on or after 1 April 2006

  • the DTI has dropped the proposal to require auditors to give an opinion on whether the directors have used "due and careful enquiry" in preparing the OFR. This follows concerns that the standard for preparing the OFR was higher than for other sections of a company's accounts and in effect a prospectus-level standard. The auditors will only be required to consider whether (a) the OFR is consistent with the company's accounts and (b) the OFR contains any inconsistencies based on any matters that have come to their attention while conducting the company audit. There will be no requirement for the auditors to review the process for producing the OFR as previously proposed in the consultation

  • there is no safe harbour from litigation for forward looking statements although the DTI will give guidance on the inclusion of health warnings regarding the directors' good faith judgments as to future events or prospects. It will also be made clear that there will be no obligation to disclose specific information about impending developments or matters in the course of negotiation

  • there will be no obligation to circulate the OFR to shareholders who have opted to receive summary financial statements.

The DTI has not published the regulations to implement the OFR at this stage but the intention is to lay final regulations before Parliament in the next two months.

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