A new operating and financial review (OFR)
could make UK companies disclose more information related to
transparency, environment and social responsibility, a move that
could be unpopular with companies but welcome by investors.

An OFR was introduced in the UK in 2005, but
replaced by the business review only a few months later. The new UK
coalition government now plans to replace the business review with
the OFR.

Both the OFR and the business review are meant
to present the directors’ analysis of the business in the annual
report, in order to provide investors with historical and
prospective analysis of the reporting entity.

Lessons learnt

Institute of Chartered Accountants in England
and Wales (ICAEW) financial reporting head Nigel Sleigh-Johnson
said the government is perhaps responding to lessons learnt in the
financial crisis about transparency and is listening to pressures
for greater disclosure in areas such as environmental impact.

KPMG associate partner Tim Copnell said any
extra reporting requirement at this time, when businesses are
focusing on recovery, are likely to be unpopular, however investors
are more likely to welcome the increase in quality of

Sleigh-Johnson said the UK Accounting
Standards Board (ASB) reviewed the current business review in
October 2009 and one finding was there is too much information in
financial reports, on issues such as sustainability, that does not
necessarily address the needs of users.

Sleigh-Johnson said there should be carful
consideration about what should be communicated in annual reports
and that the reports are not the only communication tool for
information on transparency, social and environmental

The government has not disclosed any details
or plans on how it plans to reinforce the OFR.