UK Trade and Industry Secretary Patricia Hewitt announced on the 25 th November the way forward on the new Operating and Financial Review (OFR) requirement for UK Listed Companies

The OFR will improve the quality, usefulness and relevance of information provided by quoted companies, helping shareholders get a better understanding of a quoted company's business and future prospects

Patricia Hewitt said:

"The OFR will help investors make better informed decisions and encourage an open dialogue between shareholders and business to stimulate long term wealth creation. This is essential to the millions of us who invest our savings in companies through pension funds, life assurance and other forms of investment. We save for the years ahead and we need the companies in which we invest to share our horizons.

The consultation exercise started on 5 May 2004 and generated a large number of responses from a wide range of stakeholders including companies, institutional investors, auditors, professional bodies and trade unions. Many stakeholder events and meetings took place over the summer to discuss the OFR proposals.

The announcement sets out the following key changes:

* Directors will be expected to exercise the same level of care in relation to the OFR as required under common law: no less, no more. As is the case for financial accounts, directors will be expected to apply 'due care, skill and diligence' in preparation of this new narrative report.

* Auditors will be required to state in their reports whether the information given in the OFR is consistent with a company's accounts as well as whether any other matters that came to their attention in the performance of their functions as auditors of the company were inconsistent with information directors have given in the OFR.

* To allow time for the business, assurance and enforcement communities to prepare for the OFR and to review the new reporting standard being developed by the Accounting Standards Board (ASB), the commencement date for the Regulations will be changed to financial years beginning on or after 1 April 2005.

* Where shareholders have agreed to receive summary financial statements, there will be no requirement for the full OFR to be sent, and shareholders will be notified of the availability of the OFR on the company website.

* Potential duplication of reporting requirements occasioned by the introduction of the EU Modernisation Directive will be avoided.

* The existing administrative enforcement regime in relation to defective accounts will be extended to cover defective OFRs and Directors' Reports as well. The FRRP will review the OFR in response to third party enquiries and in relation to possible omissions or mis-statements. The FRRP's administrative enforcement role will begin one year after the Regulations come into effect and apply to OFRs and Directors' Reports for financial years beginning on or after 1 April 2006.

There are many graphics on the website http://www.metaphorbusinessgraphics.com in the Financial Reporting section,dealing with recent regulatory reporting developments.

No changes of substance will be made to the objectives and content of the OFR and there will be no extension of content. Having met the review objective and general requirements of the Schedule, directors will then need to consider and include information relating to their environmental, employment, and social and community policies to the extent necessary for shareholders to understand how these are impacting the business and wider community.

The OFR will apply to all UK quoted companies and will build on existing best practice as followed by a number of large, FTSE companies. There will be no extension of coverage.

The EU Modernisation Directive requirements for an expanded Directors' Report will apply to all large and medium-sized companies and will come into effect on the same date as the OFR, i.e. for financial years beginning on or after 1 April 2005.

The Operating and Financial Review reflects ideas developed by the UK Company Law Review and further work by Denise Kingsmill and the working group chaired by Rosemary Radcliffe. In response to the consultation, reporting requirements will be streamlined from the earlier proposals. All companies in a group other than small companies will be required to produce individual Directors' Reports or, if they are quoted, individual OFRs with the ultimate parent company also producing a group report (but not an individual report). Where the parent is a quoted company, the OFR will be prepared for the group. Small and medium sized companies will be allowed to take full advantage of reporting exemptions under EU Accounting Directives, including those that form part of a group.