The ASB has now considered the comments received in response to its exposure draft ‘Review of the Statement “Operating and Financial Review”’, which was published in June.

The proposals of the Exposure Draft were widely welcomed by commentators. In particular, there was support for its broad framework approach and the inclusion of a series of principles that directors should apply when preparing an Operating and Financial Review (‘OFR’).

Commentators also welcomed the proposal to include a section dealing with ‘the business, its objectives and strategy’ and the increased prominence given to the strengths and resources of the business. The change in focus from ‘results’ to a wider notion of ‘performance’, assessed in the context of the business’ long-term objectives and using financial and non-financial measures, also received a large measure of support.

In the light of these comments, the ASB has moved ahead swiftly and has published the revised Statement.

Particular changes from the 1993 version include recommendations:

• to highlight accounting policies which have required the particular exercise of judgement in their application and to which the results are most sensitive;
• where information from the financial statements has been adjusted for inclusion in the OFR (often called ‘pro forma information’), to highlight that fact and provide a reconciliation; and
• to identify and comment on the measures that are used by the directors as key performance indicators in managing the business.

The Government is currently considering responses to its July 2002 White Paper ‘Modernising Company Law’ which proposes that, in due course, the publication of an OFR should be mandatory for large companies. Meanwhile, the ASB’s Statement is a formulation and development of best practice, intended to have persuasive effect.

Given the level of support for the exposure draft, the ASB hopes that companies will have regard to this Statement in the preparation of their next annual reports.