Skip to main content

Operating and Financial Review - OFR

Non financial information in the form of additional reporting provides alongside the financial information in the annual report, provides a good insight to the stakeholders on the company.

In January 2008 the ASB issued a press notice reminding UK quoted companies of the need to follow the enhanced business review reporting requirements in the Companies Act 2006. The ASB believes its Reporting Statement on the OFR includes all of the new Companies Act 2006 requirements and that this statement continues to provide applicable best practice guidance for UK companies.

The Reporting Statement involves:

  • The specification of a number of principles for directors to apply when preparing an OFR; and the provision of recommended key elements of a disclosure framework to apply in an OFR.
  • The principles in particular make clear that the OFR should reflect the directors' view of the business. The objective is to assist members of the company (the current shareholders) to assess the strategies adopted by the entity and the potential for those strategies to succeed. While the OFR should focus on matters that are relevant to members, the information in the review will also be useful to other users.
  • The Reporting Statement sets out a framework of the main elements that should be disclosed in an OFR, leaving it to directors to consider how best to structure their review, in the light of the particular circumstances of the entity. It contains recommendations on the disclosures that should be made in respect of any Key Performance Indicators (KPIs) included in an OFR, but it does not specify any particular KPIs that entities should disclose, nor how many, on the grounds that this is a matter for directors to decide.
Case Study:  This Business Review analyses the performance of the Tesco Group in the financial year ended 28 February 2009. It also explains other aspects of the Group’s markets, results and operations, including strategy and risk management.

  • Long Term Strategy: The rationale for the strategy is to broaden the scope of the business to enable it to deliver strong, sustainable long-term growth by following the customer into large expanding markets at home – such as financial services, non-food and telecoms – and new markets abroad, initially in Central Europe and Asia, and more recently in the United States.
  • International: "How do you run successful business in so many countries ?" We’ve long understood that retailing is local. Each team on the ground is able to adjust our offer to each market because customers in China, for example, aren’t the same as those in Poland or South Korea,
  • Core UK: "Is every little helps still important ? " Making many small improvements in everything we do is what ‘Every Little Helps’ is about, because when we all work together on the little things, it amounts to a great deal. It’s more important today than it’s ever been – it keeps us focused on what matters most to customers.
  • Non Food: It’s been a challenging year for non-food as consumers around the globe have been hit by the economic downturn and are cutting back on non-essential purchases – but by keeping our prices low, improving our offer in key categories like electricals and clothing and giving customers more choice about how they shop, such as through Tesco Direct – we have outperformed the market.
  • Community and Environment: All communities have their own individual concerns and priorities and so each of our countries has its own Community Plan. Whilst the goals and targets are tailored specifically to each country, each plan is underpinned by five core promises: actively supporting local communities; buying and selling our products responsibly; caring for the environment; giving customers healthy choices; and creating good jobs and careers.
  • People and Customers: As a Group, we’re still investing hard and growing through the downturn, with sales growing by 15% last year. To handle that growth well, we need to bring skilled, experienced people through all the time to fill the thousands of jobs it creates. Take Fresh and Easy where our team has grown from 65 to over 2,500 in less than two years. Hundreds more will join us this year, so we can’t rely on bringing people in from other parts of the business. We need to develop our own talent locally and equip our people with the skills they need to be able to do the job and lead others. That’s why we’re absolutely committed to putting the best training plans in place making sure that all of our people have the opportunity to get on in the business.
  • Key Performance Indicators: We operate a balanced scorecard approach to managing the business that is known internally within the Group as our ‘Steering Wheel’. This unites the Group’s resources and in particular focuses the efforts of our staff around our customers, people, operations, finance and the community. Its prime focus is as a management tool for the company so that there is appropriate balance in the trade-offs that need to be made all the time between the main levers of management – such as operations measures, financial measures or delivery of customer metrics.
  • Risk and Uncertainties: To ensure the Group continues to pursue the right strategy, the Board discusses strategic issues at every Board meeting, and dedicates two full days a year to reviewing the Group’s strategy. The Executive Committee also holds specific sessions to discuss strategy on a regular basis. We have structured programmes for engaging with all our stakeholders including customers, employees, investors, suppliers, government, media and non-governmental organisations.

Sources:
  1. Financial Reporting Council
  2. Reporting Statements - OFR
Further Reading:
  1. Financial Accounting and Reporting - Barry Elliott and Jamie Elliott
  2. IFRS - Interpretation and Application of International Accounting and Financial Reporting Standards
Do you like to be updated in Accountancy ?


Click here to get updates by Email in your inbox

Or


Subscribe in a reader

or Follow me on Twitter




You may also like to read


  1. How to start my own website - 1
  2. World's Best Companies 2009
  3. Strategic Drift
  4. SAP FICO Certification Questions
  5. IASB Framework - Financial Statements
Post a Comment

Popular posts from this blog

Learning Curve Theory

Learning Curve Theory is concerned with the idea that when a new job, process or activity commences for the first time it is likely that the workforce involved will not achieve maximum efficiency immediately. Repetition of the task is likely to make the people more confident and knowledgeable and will eventually result in a more efficient and rapid operation. Eventually the learning process will stop after continually repeating the job. As a consequence the time to complete a task will initially decline and then stabilise once efficient working is achieved. The cumulative average time per unit is assumed to decrease by a constant percentage every time that output doubles. Cumulative average time refers to the average time per unit for all units produced so far, from and including the first one made.

Major areas within management accounting where learning curve theory is likely to have consequences and suggest potential limitations of this theory.


Areas of consequence:
A Standard Costing

Throughput Accounting

Throughput accounting (TA) is an alternative to cost accounting proposed by Eliyahu M. Goldratt. It is not based on Standard Costing or Activity Based Costing (ABC). Throughput Accounting is not costing and it does not allocate costs to products and services. It can be viewed as business intelligence for profit maximization. Conceptually throughput accounting seeks to increase the velocity at which products move through an organization by eliminiating bottlenecks within the organization.


Cost (or Management) accounting is an organization's internal method used to measure efficiency. Since no one outside the organization uses such internal accounts for investment or other decisions, any methods that an organization finds helpful can be used.


Throughput accounting improves profit performance with better management decisions by using measurements that more closely reflect the effect of decisions on three critical monetary variables (throughput, inventory, and operating expense — defin…

Resistence to Change - Approaches of Kotter and Schlesinger

The Six (6) Change Approaches of Kotter and Schlesinger is a model to prevent, decrease or minimize resistance to change in organizations.
According to Kotter and Schlesinger (1979), there are four reasons that certain people are resisting change: Parochial self-interest (some people are concerned with the implication of the change for themselves ad how it may effect their own interests, rather than considering the effects for the success of the business)Misunderstanding(communication problems; inadequate information)Low tolerance to change (certain people are very keen on security and stability in their work)Different assessments of the situation (some employees may disagree on the reasons for the change and on the advantages and disadvantages of the change process) Kotter and Schlesinger set out the following six (6) change approaches to deal with this resistance to change: Education and Communication - Where there is a lack…