Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Wednesday, February 22, 2006

OFR – where next? And what are the key issues for DTI?

The abolition of the OFR has caused a great deal of adverse comment in some quarters, particularly from the Association of British Insurers; companies who had spent a great deal of money preparing for the OFR and from Friends of the Earth who brought legal action claiming that the government had acted unlawfully in abolishing the rules without proper consultation.
The government has agreed to pay Friends of the Earth’s legal costs, and has announced that the consultation on the content of the business review will be widened to allow comments on other issues n the OFR such as environmental and community matters.
The Business Review is intended to be less prescriptive than the OFR and will be unaudited. The DTI has indicated that the Business Review is to provide a balanced and comprehensive analysis of the development and performance of a business and the position of the company at the end of that year consistent with the size and complexity of the business concerned. The directors’ report must contain a description of the principal risks and uncertainties facing the company and be measurable against key performance indicators.
Comments are required by March 24, 2006, so what are some of the key issues?

First, there should be a safe harbour from legal liability from all forward-looking statements used or referred to in business reviews, as well as in any other reports or information issued by directors or companies, such as statements to shareholders at the AGM, or in any separate voluntary OFR.

Such a safe harbour would help directors aiming to draw up meaningful Business Reviews, voluntary OFRs and other statements made to shareholders and the markets, and in particular for the benefit of smaller listed companies.

Next companies should be able to create a holistic view of the company by cross referring in the Business Review in the Directors’ Report to information elsewhere in the Annual Report and Accounts.

Finally – and potentially most important – the Government should continue to issue guidance on the Business Review requirements of the Regulations implementing the Accounts Modernisation Directive. This should aim to make clear to companies the boundaries of the legal requirements, and where additional voluntary reporting starts.

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