The Accounting Standards Board (ASB) has today issued a Reporting Statement ‘The Operating and Financial Review’.

The Reporting Statement has been issued in the light of the Government’s decision to remove the statutory requirement on quoted companies to publish OFRs. Following the repeal of the legislation, the ASB has withdrawn Reporting Standard (RS) 1 ‘The Operating and Financial Review’ and has converted RS 1 into a statement of best practice on the OFR, which is set out in the document issued today.

Legislation remains in place requiring companies to prepare an enhanced review of their business (the Business Review) in the directors’ report, in line with the provisions of the 2003 EU Accounts Modernisation Directive.

Many major companies already publish an OFR on a voluntary basis and the ASB is keen that they should continue to do so, which is why it has issued the statement as an up-to-date and authoritative source of best practice guidance for companies to follow. The guidance set out in the statement is more specific than the requirements set out in legislation, in particular with regard to forward-looking information.

In preparing this statement, the ASB has sought to limit the changes to those required as a consequence of the repeal of the OFR legislation and to make the language consistent with a voluntary statement of best practice rather than a standard. Given the extensive consultation that took place in developing RS 1, and the need to continue to give entities guidance in preparing voluntary OFRs, the ASB is issuing this as a final Reporting Statement, rather than engaging in a further round of consultation.

The Financial Reporting Council (FRC) intends to monitor developments in this area. As part of its 2006/07 Plan and Budget, which is currently out for consultation, the FRC will undertake a review of the quality of narrative reporting in company reports.

Announcing the publication of the statement, Ian Mackintosh, ASB Chairman, said:

“The Operating and Financial Review has for some years been an important feature of corporate reporting, providing an opportunity for directors to set out a clear and balanced analysis of the strategic position and direction of their business. Whether or not the OFR is a statutory requirement, the publication of a narrative explanation of a company’s development, performance, position and prospects should continue to be encouraged as an important element of best practice. The reporting statement gives companies clear guidance and a framework within which they can achieve transparent and open communication with their shareholders.”

1. The ASB is an operating board of the Financial Reporting Council (FRC). The FRC is a unified, independent regulator. Its mission is to promote confidence in corporate reporting and governance. The FRC incorporates five operating boards: the ASB, the Auditing Practices Board, the Financial Reporting Review Panel, the Accountancy Discipline and Investigation Board and the Professional Oversight Board for Accountancy.
2. The role of the ASB is to issue accounting standards. The ASB collaborates with accounting standard-setters from other countries and the International Accounting Standards Board (IASB) both in order to influence the development of international standards and in order to ensure that its standards are developed with due regard to international developments.
3. The ASB has up to ten Board members, of whom two (the Chairman and the Technical Director) are full-time, and the remainder, who represent a variety of interests, are part-time.
4. The Reporting Statement supercedes Reporting Standard (RS) 1 ‘The Operating and Financial Review, which the ASB issued in May 2005 (see ASB Press Notice 270). RS 1 was issued under legal powers given to the ASB to make reporting standards for the OFR, in line with the requirements set out in ‘The Companies Act 1985 (The Operating and Financial Review and Directors’ Report etc.) Regulations 2005’ (Statutory Instrument, SI, 2005 No. 1011). The legal requirements for the OFR were repealed in ‘The Companies Act 1985 (Operating and Financial Review) (Repeal) Regulations 2005 (SI 2005/3442), which came into force on 12 January 2006.
5. The issue of the Reporting Statement means that the position reverts to that in place before SI 2005 No. 1011 came into force, when OFRs were prepared on a voluntary basis, with best practice guidance issued by the ASB. The ASB’s first statement on the OFR was published in 1993, with an update issued in 2003 to reflected developments in best practice narrative reporting.
6. Hard copies of the Reporting Statement are available, price £5.00 (post-free) from FRC Publications, 145 London Road, Kingston upon Thames, Surrey, KT2 6SR (020 8247 1264). Web: www.frcpublications.com.
7. All press enquiries should be addressed to Ian Mackintosh (Chairman) on 020 7492 2434 or David Loweth (Board Secretary) on 020 7492 2420.