30 January 2003
CIMA warmly welcomes the Government's Final Report of the Co-ordinating Group on Audit and Accounting Issues which, along with the recently published Higgs and Smith reports, has paved the way for raising the bar for board practice and corporate governance, not just for the UK, but internationally. However, unless a mandatory Operating and Financial Review (OFR) is imposed on companies, true business transparency will remain elusive.
Charles Tilley, Chief Executive of CIMA, said:
"International capital markets require global solutions – the development of international accounting and auditing standards demonstrate this. But a crucial piece of the jigsaw is the Operating and Financial Review (OFR) which encourages true business transparency. CIMA welcomes the Accounting Standards Board's recently published guidance on the OFR and calls for the same approach to be adopted internationally.
"We firmly believe that the principles-based approach used in UK accounting standards and the Combined Code is far more effective than the prescriptive rules-based approach used in the US. The OFR reflects the UK approach and would enable investors to better understand the risks affecting companies and other valuation issues.
"We wholeheartedly support making the OFR mandatory, as outlined in the recent Company Law White Paper. However, the Financial Services Authority should give consideration to introducing this through an amendment to the Listing Rules until the revised Company Law comes into force."
He concluded:
"We fully support Derek Higgs's view that effective boards depend on the best people and on their behaviours and relationships. But it is crucial that the issue of good management information is not overlooked. The effectiveness of both executive and non-executive directors rests squarely on the information they base their decisions on, and ultimately this will dictate a company’s long term performance. In turn, directors must make the most of the OFR to ensure that the annual report presents the relevant boardroom information to investors in an unbiased manner."
The link to the Final Report of the Co-ordinating Group on Audit and Accounting Issues is www.dti.gov.uk/cld/cgaai-final.pdf.
The link to Derek Higgs’ review of The Role and Effectiveness of Non-Executive Directors is www.dti.gov.uk/cld/non_exec_review/index.htm.
Sir Robert Smith's review on Combined Code Guidance for Audit Committee is available to download at www.frc.org.uk/publications.
Operating and Financial Review Statement is available from the Accounting Standards Board (ASB), price £5.00 post free from ASB Publications.
Telephone +44 (0)20 8247 1264.
If you would like more information please contact Lottie Muir
Phone: +44 (0)20 8849 2407
Email: lottie.muir@cimaglobal.com
