February 2006

What Is The State Of The OFR?

Chancellor Gordon Brown reversed his plan this month, and has put the Operating and Financial Review (OFR) back on the table.

The chancellor ruffled feathers in November when he told delegates at a Confederation of British Industry (CBI) conference they would not be burdened by bureaucracy and the OFR, which would have required listed companies to report on their social and environmental performance, would not be implemented.

At the time it appeared to be a less than prudent announcement, with the environmental lobby up in arms and many in the business community left scratching the heads in bewilderment.

Friends of the Earth then threatened legal action, saying it would seek a judicial review as it felt Brown's unexpected announcement that he would dismiss the planned review was unlawful.

Now the chancellor has agreed to put the plans back on the table, consulting on whether to include them in the draft Company Law Reform Bill, currently having its first reading in the House of Lords.

Flip-flop

This marks a number of recent 'changes of heart' for the UK government, which in September rapidly changed its tune about nuclear power.

The new changes in direction could add to confusion surrounding the understanding of environmental reporting. A report issued by Trucost suggested that only 9% of the 161 listed UK companies surveyed had heard of the EU Accounts Modernisation Directive. The OFR reflects this directive.

Environmental campaigners, such as Friends of the Earth, are delighted with the change of heart, and say it is an "important victory". Friends of the Earth's lawyer, Phil Michaels said in a statement that the chancellor had been guilty of breaching his own consultation policies by "carrying out an entirely one-sided, informal and unfair consultation". The Government also paid the groups legal costs.

The Operating and Financial Review

Regulations to implement the OFR came into force on 22 March 2005.

The regulations would require directors of quoted companies to prepare an annual OFR that would meet an overarching review objective. This would include both historic and certain forward-looking information to enable shareholders to assess the company's strategies and their potential to succeed. To the extent necessary to comply with the review objective and other general requirements underlying the OFR, an OFR would contain financial and other non-financial key performance indicators (KPIs), including information relating to environmental and employee matters.

The Future

The government is has assured businesses that the core of the OFR is the same as the business review.

This stance is consistent with the Financial Reporting Council's who recently announced that, in their view, the existing ASB Reporting Standard will remain as voluntary good practice guidance.

If you require assistance to help get your management systems in shape for an OFR or would like more information on integrating systems for audits, contact Steve Stones on 024 7632 3260

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