OFR: operational and financial review – a note

Measuring Business Excellence

ISSN: 1368-3047

Article publication date: 1 December 2004



Bourne, M. (2004), "OFR: operational and financial review – a note", Measuring Business Excellence, Vol. 8 No. 4. https://doi.org/10.1108/mbe.2004.26708dab.001



Emerald Group Publishing Limited

Copyright © 2004, Emerald Group Publishing Limited

OFR: operational and financial review – a note

OFR: operational and financial review – a note

At the recent PMA conference at the end of July in Edinburgh, the second keynote address was given by David Loweth, secretary to the Accounting Standards Board. He explained the current position on operational and financial reviews (OFRs), which are expected to become mandatory for quoted UK companies whose financial year start on or after 1 January 2005. This is expected to impact some 1,300 companies in the UK. He outlined his personal understanding of the current proposals, which at the time were out for consultation. The proposals have implications for company directors and auditors.

The general requirement will be for OFRs to provide a balanced and comprehensive analysis of developments and performance of the company for the financial year, the companies' position at the end of the financial year as well as the trend and factors, aspects of the company position and performance likely to impact on future performance. In terms of topics, OFRs will have to include information on the following topics:

  • Objectives and strategy.

  • Resources available to the company.

  • Risks and uncertainties.

  • Capital/treasury policies/objectives and liquidity.

In addition, OFRs should comment on:

  • employees;

  • environmental;

  • social and community;

  • persons with which the company has relations; and

  • receipts from and returns to share holders.

But only to the extent that this is needed, in the judgment of the directors, to meet the general requirements stated above. Therefore, OFRs are seen as a mechanism for improving transparency for the shareholders and not a means of greater reporting the impact on other stakeholders.

Auditors are expected to have the responsibility to review the directors' process for developing OFRs, and to state whether directors have prepared an OFR after "due and careful inquiry."

Part of the disclosure will include the reporting of key performance indictors (KPIs) in support of the review. The proposals have foreseen this and are recommending specific requirements for the use of KPIs, in particular:

  • how they are defined and calculated;

  • the source of the data;

  • how they reconcile with the financial statements;

  • comparative; and

  • when and how they are changed

Consultation on OFRs closed in early August and the final requirements will reflect the feedback the government receives, but it must be expected that an OFR will become a mandatory requirement of reporting for quoted UK companies in the very near future.

Mike Bourne

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