Institutional investors, accounting standard setters, accountants, lawyers and company directors came together at the London Stock Exchange on Friday (22 July) to discuss the challenges listed companies face in producing an Operating Financial Review.  Investors are concerned that companies’ fears over the legal implications will result in the OFR being no more than a box-ticking process or an artifice of little use to them. 

Martyn Jones, an audit partner at business advisory firm Deloitte, addressed delegates at the ‘Producing an OFR’ seminar principally for the benefit of preparers of financial information.  He commented: 

“The OFR presents a real opportunity to reveal valuable performance information to members of the company.  However the disclosure required in the OFR creates major challenges for companies and unless there is an open dialogue between companies and institutional investors there is a risk of the OFR becoming a meaningless task.

“A significant issue for UK plcs will be aligning the KPIs used to run the business to the KPIs disclosed within the OFR.  Similarly, internal risk reporting will currently involve far more sensitive information than companies would wish to reveal to the markets and it will be a necessity to ensure the two are aligned.

“Lawyers advised that there should be qualification of all forward looking statements and that directors should include a disclaimer of liability to users other than the members of the company as a body.”

Investors also voiced concern that the OFR may not include the information they require.  The real issue is that institutional investors want to consider the quality of management and the best way of doing this is to enable a proper understanding of the extent to which the company’s strategy has been applied and is successful.

Rob Lake, head of corporate engagement at Henderson global investors commented: “As investors we expect the OFR to identify key risks and opportunities, policies for managing them, and how successful those policies are.  KPIs will be crucial to allow us to compare companies with each other.  We'll also expect disclosure on how the key performance areas are supported by remuneration systems.”

Tom Keevil of Gallagher stressed the need to integrate OFR into the business and to avoid over elaboration.

Martyn Jones concluded: “OFR is something which requires some time to evolve and will require some flexibility from the active investors and regulators.”

Ends

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP.

Deloitte & Touche LLP is the UK's fastest growing major business advisory firm based in 21 UK locations, with over 10,000 staff nationwide and fee income of £1,246 million in 2003/2004. It is a member firm of Deloitte Touche Tohmatsu, a leading professional services organisation, delivering world class audit, tax, consulting and corporate finance services, with around 120,000 people in over 140 countries. Deloitte Touche Tohmatsu is a Swiss Verein, and each of its national practices is a separate and independent legal entity.

Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.

The information contained in this press release is correct at the time of going to press.