Few eyebrows were raised when the Final Report of the Company Law Review emerged from the DTI’s offices in July: its contents had been widely flagged during the preceding years of consultation. Even so, there are significant implications for finance directors within UK quoted companies.
If the final proposals proceed into law, finance departments will have to be more efficient in filing accounts. The report says quoted companies should make their annual report and accounts available on a website within four months of year-end, and file them at Companies House within six months.
It also says that most public companies, as well as large private companies, should publish an operating and financial review as part of the annual report. The OFR would contain three mandatory items: a review of the company’s business, strategy and principal drivers of performance; a review of development over the year; and the dynamics of the business, including events trends and other factors which may substantially affect future performance. In addition, the OFR should contain other information that the directors decide is relevant to an understanding of the business, such as information on corporate governance, relationships with employees, suppliers and customers, environmental and community impact and risk management. This should be included “whenever the directors regard them as material to achieving the objective of the OFR”, the report says.
Some commentators are concerned that any subsequent legislation should not be overly prescriptive with regard to the OFR and its contents. “If there is a requirement for the OFR, let’s not have any mandatory prescription of what it has to report on,” says Veronica Poole, a director in the national assurance and advisory team at Deloitte & Touche. “Let best practice evolve.
Otherwise you just end up with a boilerplate, box-ticking exercise which is just a cost burden to the company and no benefit to anybody.”
PricewaterhouseCoopers partner Roger Davis, the ICAEW representative on the Company Law Consultative Committee, believes the report takes into account the need for corporate governance, investor protection and corporate competitiveness. He calls for early legislation to implement the proposals as a whole. “This is an integrated coherent package,” he says. “If you unpick one thing, it will unravel.”