The Financial Reporting Council has noted the announcement made yesterday by the Chancellor of the Exchequer in his speech to the CBI Annual Conference that the Government intends to remove the statutory requirement for quoted companies to publish an Operating and Financial Review (OFR) for financial years beginning on or after 1 April 2005.
The announcement has implications for a number of the FRC’s operating bodies:
The Accounting Standards Board (ASB), which has issued Reporting Standard 1 (RS1) ‘The Operating and Financial Review’ under its legal powers to make reporting standards for the statutory OFR;
The Auditing Practices Board (APB), which has developed draft standards and guidance in respect of the auditor’s new statutory reporting responsibilities in relation to directors’ reports and the OFR; and
The Financial Reporting Review Panel (FRRP), which has revised its Operating Procedures to take account of its anticipated new statutory powers to enforce compliance with the statutory requirements for the OFR with the law for financial years beginning on or after 1 April 2006.
As the Government’s detailed plans for removing the statutory requirement for the OFR (while retaining the requirement for an enhanced business review in the director’s report ) become clearer, the FRC and its operating bodies will consider the implications, consult as appropriate and make further announcements.
The FRC has long believed that the publication of a narrative explanation of a company’s development, performance, position and prospects should be encouraged as an important element of best practice in corporate reporting. The ASB first produced a statement of best practice in 1993 (updated in 2003). A significant number of FTSE 100 companies already publish an OFR. Regardless of whether or not an OFR is a statutory requirement, the FRC’s view of best practice remains unchanged. RS1 is the most up-to-date and authoritative good source of best practice guidance for companies to follow.
