The Government proposes to use powers conferred by Clause 13 of the Companies (Audit, Investigations and Community Enterprises) Act to specify the Board to make the first reporting standards for a mandatory OFR, building on the Board’s existing statement of best practice. Full details of the Government’s proposals for the OFR were first outlined in a consultation document published on 5 May (the comment period on which closed on 6 August) and the final proposals were announced on 25 November. Under the Government proposals, quoted companies will be required to prepare a statutory OFR for the first time for financial years beginning on or after 1 April 2005. The Government’s Regulations on the OFR are scheduled to be laid before Parliament shortly.

The Board agreed that an Advisory Committee should be set up to advise the Board on the first standard for the OFR. Terms of reference for the Committee and proposed membership were announced on 13 May (see Press Notice 243).

Reporting Exposure Draft 1 (RED 1)

On 30 November, the Board issued an Exposure Draft of a Reporting Standard (RED 1). The proposals in the RED build on the Board’s existing statement of best practice on the OFR (last issued in 2003), which is already used by many companies, and the requirements of the forthcoming Regulations. The proposals involve a principles-based standard, which in particular makes clear that the OFR shall reflect the directors’ view of the business. The objective is to assist investors to assess the strategies adopted and the potential for those strategies to succeed. The information in the OFR will be useful to both investors and other users.

The proposed standard also provides a basic framework for directors to apply in order to meet the requirements of the Regulations. It is for the directors to consider how best to use this framework to structure the OFR, given the particular circumstances of the entity.

Although following a framework approach, the Board is conscious that some guidance would be useful to directors and it has accordingly prepared some draft Implementation Guidance to accompany the draft Reporting Standard. The Guidance sets out some illustrations and suggestions of specific content and related key performance indicators that might be included in an OFR, especially on the particular matters referred to in the Regulations.

The Exposure Draft is open for comment until 28 February 2005. The Board will then seek to finalise the Reporting Standard as soon as possible after the end of the consultation period, although it may not be possible to do so by 1 April 2005, when the Regulations take effect.

Contacts: David Loweth, Janice Lingwood