Free Management Dissertations - Historically, Business Accounting Developed To Supply Information To Those
Historically, business accounting developed to supply information to those who had invested their wealth in business ventures. Financial reporting emerged in the nineteenth century as a result of the need to protect investors in joint stock companies trading under limited liability. It had been evident for a long time that the information needs of investors are not adequately met by published balance sheets, profit and loss accounts and more recently cash flow statements. So what information should be provided to investors? A statement reflecting the management’s view of the company’s future prospects, their plans for the future and related matters would be required in order to make rational decisions. It has been stated that the disclosure of company operations and future plans would be extremely useful to investors. The disclosure of such future plans would provide investors with the benefit of management’s knowledge of company operations, and its views of the future outlooks form such operations. The disclosure of future plans would provide users with a better platform for evaluating managerial performance. Finally, the disclosure of such information would also ensure that share prices would reflect more correctly the future prospects of the company, and the value of the company’s shares, as it would incorporate all available information and make the share market ‘strong-form’ efficient.
The Accounting Standards Board (ASB) issued a non-mandatory statement of best practice explaining how the Code’s requirement for the annual report to include a balanced and understandable assessment of the company’s position and prospects can be fulfilled in an ‘Operating and Financial Review’ (OFR) recommending that the annual reports of large and or listed companies should include an OFR. The statement does not ask for a new section of the annual report entitled OFR have to be included. The OFR disclosures can either be outlined in a new section or integrated in another existing section like the director’s report or the chairman’s report. The principal the smaller listed companies tend to include the disclosures in the chairman’s report, while big corporations will include the disclosures in a separate section written by the Chief Executive Officer of the company.
Below is an example of Lattice Group Plc OFR statement in compliance with the Combined Code:
The Directors of Lattice Group have pleasure in presenting their Directors’ report for the 15 months to 31 March 2002, incorporating the Operating and financial review, general information, the remuneration report and the internal control report.
Operating and financial review
This Operating and financial review focuses on the continuing operations of those businesses that were demerged as part of the Lattice Group on 23 October 2000 or which were acquired subsequently.
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