Exactly a year ago quoted company directors were facing a "write to rule" regime. Operating and Financial Reviews (OFRs), as set out in company law and backed up by a lengthy mandatory Reporting Standard from the Accounting Standards Board (ASB), would be required effectively for March 2006 year ends onwards.

Last year's Deloitte survey on narrative reporting "Hold the front pages" reported that this would be a significant task for all and a considerable challenge and burden for many. The withdrawal of the mandatory OFR was therefore a considerable relief, particularly given the other challenges of the 2005/6 reporting season, such as converting to International Financial Reporting Standards (IFRS).

While the OFR is not mandatory, there remain the ASB's best practice Reporting Statement (RS), the desire for certain stakeholders to see more in annual reports and the imposition of the Enhanced Business Review (EBR) in the directors' reports.

Highlights from the survey are:

• the inexorable increase in the length of annual reports continues at an all time high;
• about three-quarters of companies either prepare a formal OFR or show clear recognition of the OFR;
• the number of companies disclosing principal risks and uncertainties is up from 54% last year to 74%, although many continue to focus on financial risks only;
• coverage of non-financial aspects of the business has improved dramatically; and
• 45% of companies formally adopting or clearly recognising OFR principles presented KPIs.

The introduction of the statutory EBR, the changes in the forthcoming Companies Act 2006 and the introduction of the Transparency Obligations Directive into the UK will ensure that narrative reporting receives continuing scrutiny over the next few years. Examples of better practice reporting are emerging and are covered in the survey. Writing to reason will, it is hoped, remain the norm for the bulk of narrative reporting so that directors can faithfully write their own account of the business.

For more information, download our publication Write to reason (PDF, 2954 KB)