FSN: Operating & Financial Review debate moves on

Operating & Financial Review debate moves on

28th November 2005
The debate in the UK corporate sector about the Operating & Financial Review has moved onto its second stage, says ACCA in two new reports published on the OFR.

The first report, argues that competition - and the fear of adverse media comment or an inquiry from the Financial Reporting Review Panel - will encourage companies to produce meaningful narrative and analysis. The second report, a study of FTSE 350 companies for ACCA by Nottingham University Business School found that more than 25% of respondents believed their company had no policy in place for determining what information should be included in the OFR.

Roger Adams, ACCA Technical Director, said: "The debate is definitely gaining pace - the penny is dropping that the OFR represents a step-change in reporting. If companies fail to take this opportunity to communicate a compelling vision of where they are going, then shareholders and the wider market will question why. With the Review Panel set to formally examine OFRs in just over a year's time, companies need to start preparing now to get their systems in place to provide the right information".

The second report, a study of FTSE 350 companies for ACCA by Nottingham University Business School suggests they may have some way to go. More than 25% of respondents believed their company had no policy in place for determining what information should be included in the OFR.

The survey also found that a lmost 80% of respondents said shareholders were the key audience, though just under 50% said a wider stakeholder audience of employees, customers and government/regulators was also of high importance

Legislation/regulation was the prime motive for companies to manage social and environmental issues they faced (87%). Next came shareholder/analyst expectations, with customer/client demand on 59%.

Roger Adams said: "There had been widespread concerns that companies would just produce bland 'boiler-plate' statements, which is why we fully supported the decision to require Key Performance Indicators for companies reporting. The Review Panel will ensure that the purpose of the OFR is adequately served even though there is a lot of flexibility allowed by RS1, the reporting standard for the OFR.

"Bland statements, inadequate coverage of subject matter, an absence of KPIs and a general lack of data and meaningful analysis are areas which will single out a report as weak. Market expectation will lead to the emergence of OFR 'champions' looking to gain competitive edge by quality reporting in this area."

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