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Brown promises to abandon mandatory OFR

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29th Nov 2005
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Chancellor Gordon Brown said this week he will scrap the statutory requirement for an OFR (operating and financial review), which was to be compulsory for all listed companies from next April.

In his speech to the CBI Annual Conference on Monday, Brown said he had been concerned for some time about the "goldplating of European regulation, where in the process of translation into our own UK laws we end up with additional and unnecessary burdens".

He added: "Best practice is of course for companies to report on social and environmental strategies relevant to their business. But I understand the concerns about the extra administrative cost of the gold-plated regulatory requirement that from April next year all quoted companies must publish an operating and financial review.

"So we will abolish this requirement and reduce the burdens placed upon you - the first of a series of regulatory requirements which by working together we can abolish in the interests of the British economy.'

Brown also spoke of other red tape-busting measures which, he said, would save businesses up to £300 million a year in administration costs.

These included abolishing Form 42 for employee share awards for 90% of companies, simplifying tax forms, and introducing a new simpler self-assessment to be piloted from next April.

He added that the government is consulting on how best to introduce a single filing date, and said that he wants to consult with business and industry on the potential benefits of unified registration for all taxes.

The speech in full can be viewed on the Government news website.

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
30th Nov 2005 12:34

Not all reactions are negative
Some reactions to Gordon Brown's speech have been more conciliatory, such as this from ICAS executive director (technical policy) David Wood: "We welcome this announcement and believe that this is something that business in general will support. Better regulation is an issue that we have campaigned on for some time, and we will be responding to Alan Johnson's call for suggestions on how his department can cut red tape and simplify procedures for the benefit of business."

The Forum for Small Business also welcomed the DTI's Simplification plan.

But neither of these two organisations picked up on the issue of the OFR.

John Stokdyk
AccountingWEB.co.uk

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By AnonymousUser
30th Nov 2005 16:41

A possible reason?
It could be that GB has decided not to give ICAEW members yet another reason to charge Client's fees for results as meaningless as a KPMG audit. See: MP calls for DTI review of Heritage case.

If that is GB's reason, it is to be applauded!

Jeff Lampert

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By AnonymousUser
01st Dec 2005 15:51

It’s the old Caparo chestnut that done it for the OFR!
As an investor, it came as no surprise that the UKs OFR project has been dropped. An OFR-type report is soon to be required by the EU and the gold platting of UK regulation was always going to be a non-starter. The fees charged during the consultation process should now comfort our accountancy friends’ crocodile tears.

Since 1990 and the House of Lords Caparo judgement, investors and trade creditors have known that they could not make business decisions on the basis of the audited accounts. To add a UK OFR requirement to this is an unnecessary expense.

We will have to see during the passage of the Company Law Reform Bill if any meaningful attempt is made to ensure that investors in UK quoted companies get any reasonable rights and responsibilities.

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By listerramjet
30th Nov 2005 15:48

so what is the issue
and a big plea to Gordon get rid of more of the mandatory stuff. if it assists the capital markets as claimed then presumably organisations will provide an OFR without regulation, because they get a clear benefit.

if the icaew and others would like to see OFR made mandatory then why not get the stock exchange or accounting standards to require one?

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By User deleted
30th Nov 2005 12:25

Baffling and counter-productive decision
Gordon Brown’s U-turn on the Operating Financial Review (OFR) is baffling to the say the least. This so-called ‘red tape’, which ensures businesses report both financial and non-financial drivers, is something that companies surely should have at their fingertips already. The question should really be if this type of information is not available, what are they running their businesses on?

The furore surrounding OFR demonstrates a lack of understanding on how organisations should be using business driver information to improve efficiency, which, in turn, would surely help towards the Government’s productivity strategy.

The OFR is not superfluous red tape. Organisations deploying a corporate performance management strategy already reap the benefits of this visibility and control of future performance.

Mike Sherratt
Founder and CEO, ALG Software

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
29th Nov 2005 11:06

ICAEW response
Eric Anstee, Chief Executive of the Institute of Chartered Accountants in England and Wales, commented:

"We are concerned at the sudden nature of the Chancellor’s decision, given the time, effort and investment that has been put into the development and introduction of the Statutory Operating and Financial Review.

"Whilst we are very supportive of appropriate steps to reduce the regulatory burdens on business, we believe that the successful implementation of the new requirements for greater transparency regarding business strategies and future prospects would have bolstered the confidence of investors in the capital markets.

"We will continue to encourage best practice in this area, taking account of proposals recently published by the International Accounting Standards Board for an international version of the OFR that in many respects reflects the UK’s plans.”

John Stokdyk
AccountingWEB.co.uk

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
29th Nov 2005 11:00

Anti-red tape move seems to have backfired
Since Gordon Brown's comments were published, AccountingWEB has received several statements criticising his U-turn on the statutory requirement.

No doubt the Chanceller will be fulminating in his Downing Street flat about ingrates in the business world (and accountancy bodies), but this is a typical example of the mess politicians get into when they think symbolic gestures are a good basis for complex policy decisions.

During the consultations that preceeded the Companies Bill, there were criticisms about the impact of a mandatory OFR, for example from then ICAS president Ian Roberston, who argued that mandatory status would lead to blander, more caveated statements.

The reason for this Robertson said, was because the statutory OFR was "seen on the one hand as a move to give the writers of such reports less wriggle room, and on the other as an attempt to get writers on the hook".

But ACCA technical director Roger Adams argued that the requirement to include key performance indicators in the OFR would overcome the tendency to rely on "boiler-plate" disclosures.

In a guide published on AccountingWEB, CIMA director of technical development Richard Mallett also supported the mandatory OFR.

Many of the 78 press reports on Google include negative statements from the likes of the FRC, IoD, ABI and the accountancy bodies, including:
Directors group slams plans to abolish OFR rules PersonnelToday.com
Big investors may insist on good governance reviews Guardian Unlimited
Investors slate retreat on reporting rules Reuters.uk, UK

John Stokdyk
AccountingWEB.co.uk

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
29th Nov 2005 11:13

CIMA statement
Charles Tilley, chief executive of CIMA said: "The drive to reduce the burden of red tape on business is a laudable one, but we believe wholeheartedly in the value of the OFR. Confusing the OFR with a reduction in bureaucracy risks losing the benefits it will deliver to all stakeholders, particularly shareholders. That would be the wrong step and a fundamentally bad one.

"With increasingly complex financial reporting, a framework such as the OFR which enables companies to explain the meaning of the financial report and where the business is going, is incredibly valuable to investors and shareholders of all sizes. Since the IASB has recently issued a Discussion Paper seeking views from interested parties on management commentary, and launched its initiative to progress internationally harmonised reporting standards, we believe taking a step back from the OFR would be a significantly retrograde step for reporting standards in the UK. Our hope is that well managed companies will continue to uphold the principles of the OFR."

John Stokdyk
AccountingWEB

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By User deleted
29th Nov 2005 11:03

OFR U-turn: Statement from ACCA
ACCA is very surprised and disappointed at reports that Chancellor Gordon Brown is planning to abandon the statutory operating and financial review (OFR).

The OFR concept has been developing as an optional feature of UK financial reporting since the early 1990s, but its conversion to a statutory footing earlier this year had been seen as an integral feature of the new corporate reporting framework being brought in under the planned new companies legislation.

We query what has caused the Government to change its mind so dramatically on the OFR, particularly since provisions dealing with the new statement appeared in the long-awaited company law reform bill when it was published earlier this month.

The Chancellor cites as his reasoning the need to spare quoted companies from superfluous red tape.

Yet when steering the OFR regulations through Parliament earlier this year DTI minister Jacqui Smith said to Parliament: "We carefully considered what stakeholders told us during consultation, and announced several changes to the draft regulations last November. Those changes have strengthened our proposals, reduced the burdens for companies and enhanced the usefulness of the OFR for shareholders and other stakeholders."

ACCA's view is that the new model has attracted broad support from the business community as a vehicle for a more broadly-based reporting function. From our contacts with companies and investors, our understanding is that both groups have reacted positively to the introduction of the OFR. Though there have been concerns with certain aspects of it, most have adopted a constructive approach to it, as opposed to seeing it as an exercise in pointless red tape.

ACCA agrees wholeheartedly with the goal of reducing red tape, but we also believe that the OFR has the potential to become a very useful tool for stakeholder engagement. To abandon it at such a late stage, and before it even had the opportunity to prove its worth, calls for a full explanation from the government.

John Davies
Head of business law, ACCA

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