It seems that the uncertainty over the future of the mandatory Operating and Financial Review (OFR) has finally come to an end.
In May, as part of a series of new draft clauses for the Company Law Reform Bill, the Government proposed changes to the Companies Act, which will simplify and clarify the narrative reporting requirements for quoted companies.
As discussed in the last issue of the Financial Reporting newsletter, for periods beginning on or after 1 April 2005, all apart from the smallest of companies will need to produce a Business Review within their Directors’ Report. The draft clauses laid before Parliament in May specify additional disclosures that quoted companies will be required to make in their Business Review over and above that required by unquoted companies, but they will not be required to produce a full OFR. The requirements are intended to ensure that meaningful narrative information is provided to shareholders without the additional burden of producing everything that was required in a statutory OFR.
In addition to the changes applicable to quoted companies, the draft clauses also set out a proposed exemption from making available to all companies information in the Business Review which will be seriously prejudicial to the company’s interests. At present, this exemption is not part of the Companies Act.
Smith & Williamson commentary
While the saga of the mandatory OFR may have finally drawn to a close, it is unlikely to be the end of discussions on narrative reporting, not least because the IASB has an active project in this area. Many listed companies already produce levels of information which go beyond that suggested by the revised legislation, an indicator that market forces also have their part to play in determining the information included in financial statements.
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