Broader Disclosure and the Operating and Financial Review (OFR): the standards perspective Ian Mackintosh Chairman, ASB November 2004

OFR: Government proposals Government proposals on draft Regulations to implement the statutory OFR for quoted companies issued May Following consultation, OFR requirements will become effective for financial years beginning on or after 1 April Government proposing that the ASB develops standards for the OFR.

OFR: perspectives for the standard Meeting the legal requirements, but avoiding detailed prescription. OFR has to reflect the directors’ view of the business… Prepared for investors With the content covering the OFR objective and general requirements as set out in the Regulations, as well as Reflecting the requirements to cover particular matters “to the extent necessary”.

OFR: objective Regulations state that OFR shall be a balanced and comprehensive analysis of … The development and performance of the business during the year The position of the company at the end of the year Main trends and factors underlying development, position and performance during the year and those likely to impact in the future.

OFR: general requirements The OFR shall include… A statement of the business, objectives and strategies. A description of the resources available to the company. A description of principal risks and uncertainties facing the company. A description of capital structure, treasury policies and objectives and liquidity.

OFR: particular matters Regulations require that “to the extent necessary” to comply with the OFR objective and general requirements, it shall also include information about particular matters. Specific references to: –employees –environmental matters –social and community issues –persons with whom the company has relations –receipts from, and returns to, shareholders –Key Performance Indicators (KPIs)

OFR – issues in developing the standard Timetable: the 2005 challenge. Managing expectations: burden or opportunity? Quality not quantity of reporting. Link to international work – project for IASB on management commentary. KPIs.

ASB - approach Developing a ‘framework’ reporting standard Principles for the preparation of an OFR A disclosure framework for the content of the OFR, flowing from the legal requirements Requirements of what should be disclosed for each KPI in the OFR, but not mandating specific KPIs for all companies to include in their OFR

OFR – the way forward Government announcement on proposals for OFR. Final Regulations to be laid shortly. Statutory power for ASB to set reporting standards in regulations under the Companies (Audit, Investigations and Community Enterprise) Act ASB exposure draft to be published by the end of the month, so watch this space.