.jpg)
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. It is a vital plank in DTI's drive for effective corporate governance and will benefit business, investors and the economy at large - improving the quality of investment decisions and the allocation of capital.
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.
"I'm pleased there was such an active consultation and involvement from such a broad range of stakeholders. Their feedback has helped strengthen our proposals and meet our policy objective - encouraging full and frank disclosure in a cost effective and efficient way.
"In response to the consultation, we're simplifying the audit requirements, addressing duplication, avoiding unnecessary publication costs and giving companies more time to manage the transition. This will enhance the usefulness of the OFR for both shareholders and other stakeholders.
"Our approach is designed to strike the right balance between encouraging enterprise on the one hand, and protecting shareholders and investors on the other hand; between minimising regulatory burdens and ensuring there are adequate systems for ensuring transparency, compliance and enforcement."
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.
Ms Hewitt's Parliamentary announcement set 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.
Referring to the content of the OFR, Ms Hewitt confirmed that the Government believes directors can be open and candid with information in their OFR and able to:
o distinguish between those statements made based on good faith judgements, and those made based on objectively verifiable data, with Guidance Notes making clear that companies may wish to advise members of the need to treat with caution good faith judgements, in particular those relating to future events or prospects; and o not disclose specific information about impending developments or specific matters in the course of negotiation. This will be made clear in the Regulations.
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.
Summing up the policy changes, Ms Hewitt said:
"The business environment is changing dramatically and at an accelerating pace. Companies are becoming increasingly complex and information needs are changing. The OFR is a crucial element in the corporate governance agenda, and will contribute to raising the productivity of British companies, helping generate prosperity for all."
