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AIA

Mandatory OFR gives CPM software a boost

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22nd Jun 2005
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Much like the US Sarbanes-Oxley law, the advent of the compulsory Operating and Financial Review (OFR) in listed UK company accounts is stimulating the market for corporate performance management (CPM) software.

Now a requirement for financial statements of listed and public interest entities covering years beginning on/after, 1 April 2005, the OFR is intended to be the place where company directors address the internal and external issues that are likely to affect their company's performance.

The new Accounting Standards Board Reporting Standard RS 1 'The Operating and Financial Review' stipulates that the OFR should address performance both in the period under review. the and in the future While setting out a principles-based framework for OFR content, the standard encourages the use of non-financial information and key performance indicators (KPIs) such as market share and customer satisfaction.

According to Gartner vice president for research Nigel Rayner, "The OFR goes further than any other reporting regulation in stipulating the disclosure of information outside the traditional financially oriented content of annual reports."

The OFR will have an immediate impact on the financial reporting processes and systems of UK-listed companies, he said, adding that companies should consider the OFR challenge as part of a broader corporate performance management strategy.

Not surprisingly, this view is enthusiastically endorsed by CPM suppliers such as ALG Software and Cognos, which both recently published white papers on the subject.

ALG global marketing vice president Richard Barrett, commented, "Corporate Performance Management is a key piece in the jigsaw if companies are going to go beyond mere compliance and actually get value from the OFR.

"The better CPM systems offer predictive functionality that allows users to quickly access the impact of any changes that may impact future performance. The advantage of having a system that does this is that once the predictive rules are defined, the result is demonstrably unbiased. This will hold up to the legislation's auditing requirements."

According to ALG, the OFR requirements will put a strain on those companies that try to compile the necessary performance data by keying information into spreadsheets. And getting in consultants to pull something together was misguided, Barrett said, as this would deprive management of valuable insights they could gain from a more comprehensive CPM approach.

The companies that apply CPM systems won't just use them to satisfy the OFR requirements, he explained. "These systems will enable them to manage their businesses better and out-perform their peers."

Cognos UK vice president Graham Walter made a similar point. "While the task of complying with OFR may seem daunting, the questions being asked are not new," he said.

"The concept of CPM and the objectives of OFR are very closely aligned. Forward-thinking CEOs, who have already embedded performance management within the organisation, have been asking those same questions for years."

Related materials

  • ALG white paper: How EPO helps companies meet the requirements of the OFR
  • Cognos OFR whitepaper
  • ASB launches new OFR standard
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