The Accounting Standards Board (ASB) today announced details of how it intends to develop the first standards for an Operating and Financial Review (OFR).

This follows the announcement by the Government that it intends to specify the Board in legislation as the body to make the standards for a mandatory OFR. The Government’s intentions were published on 5 May in a consultation document ‘Draft Regulations on the Operating and Financial Review and Directors’ Report’, including a proposal that quoted companies should have to prepare a statutory OFR for the first time for financial years beginning on or after 1 January 2005.

As announced in the Government’s consultation document, the ASB hopes to issue an exposure draft of the first OFR standard in the second half of this year, to be finalised in 2005.

Advisory Committee on the OFR

To assist the Board in its responsibilities for issuing the first standard, the Board has established an Advisory Committee on the OFR, which will comprise:

• Mike Corless, Global Head of Equity Research, HSBC Asset Management Ltd

• Deborah Doane, Chair, Corporate Responsibility (CORE) Coalition

• Guy Elliott, Finance Director, Rio Tinto plc
  
• Margaret Ewing, Group Finance Director, BAA plc
  
• David Morris, Company Secretary, GUS plc
  
• Professor Andy Neely, Centre for Business Management, Cranfield School of Management
  
• Andrew Tusa, Head, Corporate Governance, Deutsche Asset Management
  
• Janet Williamson, Policy Officer,
  Trades Union Congress
  
• Observers from the Department for Environment Food and Rural Affairs and the Department of Trade and Industry 

The Advisory Committee has been tasked with considering current national and international guidance and reviewing the ASB’s current statement of best practice on the OFR (last revised in 2003) in order to make recommendations for any changes to meet the requirements of the OFR Regulations, taking account of what is realistic and practicable to introduce for financial years beginning 1 January 2005.

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Press enquiries:

1.                  The DTI’ s consultation document Draft Regulations on the Operating and Financial Review and Directors’ Report can be downloaded from the DTI website at www.dti.gov.uk/cld/financialreview.htm.  The consultation period closes on 6 August.

2.                   The terms of reference for the Advisory Committee are set out below:

The Government has announced that the Board will be specified under powers conferred by Clause 13 of the Companies (Audit, Investigations and Community Enterprise) Bill to make the standards for a mandatory OFR for quoted companies. The legislative requirements for the OFR will be set out in Regulations to be made under Section 257 of the Companies Act 1985. The Regulations will specify that the OFR will become mandatory for financial years beginning on or after 1 January 2005. In the first instance, the Board will need to prepare a framework standard to meet the requirements of the Regulations.

The Advisory Committee has been set up to advise the Board in its responsibilities for issuing the first OFR standard. The Board envisages that the first OFR standard will be issued in the first half of 2005. Thereafter, the Board will consider what arrangements should be in place for further standards.

The Advisory Committee should review the Board’s current statement of best practice on the OFR (revised 2003) and make recommendations for any changes to meet the requirements of the OFR Regulations, taking account of what is realistic and practicable to introduce for financial years beginning 1 January 2005.

Account should also be taken of:

• the Government’s stated objective for quality, not quantity of reporting and for the OFR to reflect the directors’ view of the business;
  
• the Principles of Good Regulation, as specified by the Better Regulation Task Force;
  
• the report of the OFR Working Group The Operating and Financial Review: Practical Guidance for Directors (2004);
  
• current international best practice; and
  
• the work of the international group of standard-setters, led by New Zealand and with ASB participation, on a project on Management Commentary.”