The time has come to make OFR statutory!!!

Operating and Financial Review alias OFR is a famous topic going on amongst investors currently, specially due to the financial crisis and credit crunch resulting in the recession faced by the developed countries.

What is an OFR?

An OFR is a statement which gives an unbiased, understandable, true and fair assessment of the business and its operations directly from the board of directors of the company. The report also evaluates the profitability and peformance of the current operations carried out by the company, along with the possible new investments and expansions in the future. The statement comes out as an attachment with the annual financial statement giving a qualitative view of the company to the interested stakeholders.

The definition of an OFR itself makes the current need for the statement obvious, “to build up the lost confidence in the business once again”. The Companies House of UK has set guidelines to prepare OFR, though it’s not made mandatory or statutory. This simply give the freedom to the risk facing companies not to attach an OFR and be safe from the negative impact in capital injection through both equity and debt.

It would be advisible to maake such statements statutory as all companies would be bound to prepare it annually with an unbiased view. For an example, the continous banks failures in USA.  Such issues occur due to the freedom given to the Directors and the operational level to take their own decisions, which finally impacts on a wider community.

OFR is just an option that should be made statutory, whereas there are lot more qualitative statements apart from the usual income statements and balance sheets which only considers profit as the sole objective. But what now expected by stakeholders is more qualitative, which would build confidence on the long term stability and sustainability of the company.

Anyways it’s going to be a hard task for the companies to build up the confidence and restructure the Wall Street back again with banks of more 100 years history collapsing. Maybe it could be achieved by revealing more information about the company and its operations, where again Companies House and Company Law should play a vital role to save both companies and investors.