British companies are having so much trouble working out what to put in
forward-looking annual business reviews required under last year’s
Companies Act that they have been turning to the discarded official
guidance for the now-defunct operating and financial review (OFR)
regime.
The Accounting Standards Board says its analysis of the results of five
recent surveys of narrative reporting, plus its own review of 23 annual
reports published since the Companies Act came into force, shows that
in the absence of any guidelines on preparing a statutory business
review, the principles outlined in the OFR reporting statement ‘are
being widely adopted by quoted companies as best practice’.
The ASB found this was most widespread among FTSE 100 companies and
observes that some companies are taking on nearly all the
recommendations of the OFR statement.
The board says it is logical for businesses to follow the OFR statement
even though it is technically out of use, because it is ‘the most
up-to-date and authoritative source of best practice guidance’
available. Furthermore, companies that follow the statement will ‘in
general more than meet the legal content requirements for the business
review’, and will therefore operate best practice rather than merely
fulfil legal requirements.
As the statement stresses the importance of dealing with social and
environmental matters, companies may also give greater prominence to
these issues than they might otherwise have done.
The board’s reporting statement on the OFR was shelved last year when
the UK government ditched its plans requiring listed companies to
produce OFRs that explained social and environmental factors felt by
directors to be a risk to the business.
Instead it introduced a requirement for less rigorous business reviews
that place lighter emphasis on non-financial matters, but failed to
offer guidance on what the reviews should contain.
The Chartered Institute of Management Accountants said it endorsed the
board’s view that companies would do well to use the OFR statement to
prepare business reviews.
