Giving evidence at the first hearing held by the Treasury select committee on financial regulation last Wednesday, Roger Adams, ACCA’s technical director, said he expected the draft review to reveal an incremental upgrading of reporting required in the OFR.
But he said the standard would not go any further until implementation of the company law review, which represents a much more fundamental change in reporting requirements.
‘I think we will see an upgrading of the existing OFR guidance – you will find more emphasis on principles: previously it was rather a check list,’ Adams told the select committee, chaired by Labour MP John McFall.
The Treasury select committee is currently investigating the financial reporting of public limited companies in the wake of the Enron collapse and will be taking further evidence from interested parties, including a second appearance from the accountancy institutes.
Much of the debate at last Wednesday’s hearing focused on the OFR, which the ICAEW’s president elect Peter Wyman urged should be mandatory, in line with the recommendations of the company law review.
The OFR is a qualitative, as well as financial, evaluation of performance, trends and expectations, prepared by directors from their perspective as managers of a business. But, as Roger Adams conceded, ‘there is always a battle between the forces of disclosure and those who wish to retain their commercial sensitivity’.
The ICAEW has recommended that a wide-ranging OFR with an emphasis on risk-related information should be a key component of company annual reports. But to date, no legislation has been enshrined in company law, a point that Wyman and the others found frustrating.
‘We would get on a lot faster if we had a companies bill,’ Wyman said.
And he also indicated his concern the OFR did not form part of the current audit process. ‘At present it falls outside the scope of audit, and that troubles me,’ he said.
This point was seized on by one member of the committee, Labour MP Jim Cousins, who claimed a mandatory OFR represented ‘a huge commercial opportunity’ for the accountancy firms.
Wyman conceded ‘there would be an extension of work’, but added: ‘There would be a massive extension of risk.’
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