The Chancellor, Gordon Brown stunned British business during his speech to the CBI on Monday, 28th November 2005, announcing that the Operating and Financial Review (OFR) would be withdrawn. Although City reaction was mixed, DTI minister Alun Michaels has now set in chain the repealing of the OFR regulations. In place of the OFR, companies will need to include a Business Review as part of the Directors' Report, in compliance with the EU Accounts Modernisation Directive requirements.

The Business Review will need to cover principal risks and uncertainties as well as giving a balanced and comprehensive analysis of the business. Companies producing a Business Review must disclose information that is material to understanding the development, performance and position of the company, and the principal risks and uncertainties facing it. This will include information on environmental matters and employees, on the company's policies in these areas and the implementation of those policies. Moreover, key performance indicators must be used where appropriate.

Companies that have been preparing to produce an OFR will be able to use that work to improve the quality and depth of their Business Review. In addition, many companies have either produced or are close to producing an OFR and may wish to continue to produce a voluntary OFR. Forum for the Future, a leading UK NGO, reports that many of its business members are planning to take the voluntary route as they see value in reporting their non-financial risk.

The depth of analysis required by Business Review is proportionate to the size and complexity of the business and small business will be exempt from it. Medium sized business are not legally obliged to include information about key non-financial performance indicators but are strongly encouraged to report, where appropriate, on these issues voluntarily in recognition of the benefits such disclosure brings to the operation of the business.

The Government intend to bring forward amendments to remove the need for a quoted company to produce an Operating and Financial Review in the forthcoming Company Law Reform Bill. Consultation on these amendments and the Business Review continues to 15th February 2006.

Until that point the Government has issued a briefing available at www.dti.gov.uk/cld/N00002IU.pdf.

For further information about Sd3's reporting service please click here.