Don’t confuse OFR with the integrated report



The Australian Institute of Company Directors has urged listed company directors to exercise caution when preparing disclosures under both the operating and financial review (OFR) and the International Integrated Reporting Framework (IRF). Both, it says, can pose significant risks for directors.

In its submission to the International Integrated Reporting Council (IIRC) in response to a consultation draft of the IRF, the Financial Reporting Council in Australia suggested that an alternative and simpler approach might be to use the OFR as the vehicle for introducing an integrated report.

However, Company Directors believes the OFR, which is included in listed companies’ directors’ reports, is significantly different to an integrated report and, as such, it is not appropriate for the integrated report to be subsumed into the OFR.

Given this, Company Directors has prepared a paper which helps enable directors to compare and contrast the two frameworks and assist them to identify the issues of relevance in their respective directorships.

A key concern for Company Directors revolves around forward-looking disclosures.

It says: “Both the OFR and IRF encourage the use of forward-looking disclosures to provide information about the future prospects of the organisation or entity. In Australia, both the OFR and IRF must be considered in the context of how the required and recommended disclosures interact with other provisions in the Corporations Act and the ASIC Act.

“Company Directors has consistently raised concerns about the potential for personal liability for directors for the forward-looking disclosures within an integrated report. We have similar concerns about the disclosures within an OFR.

“Many accounting experts have stated that neither of these frameworks is seeking disclosure of detailed forecasts of future financial performance. However, the liability regimes in the Corporations Act and the ASIC Act (including the provisions relating to misleading and deceptive conduct) apply whether the statement as to a future matter is a forecast (quantitative information) or any other type of information (qualitative information).

“Any statement which includes a forward-looking element, if not made on reasonable grounds, is at risk of causing a contravention of the relevant provisions. The existing provisions in the Corporations Act and ASIC Act are arguably premised on the basis that only limited statements as to future matters are required.

“If a statement as to a future matter is unreliable, based on uncertain information or at risk of not being made on reasonable grounds then the company making the statement must carefully consider whether it is appropriate to include it in a corporate disclosure. A director’s ability not to include particular forward-looking disclosures is under increased pressure in light of ASIC’s guidance on the OFR and IRF.”

Company Directors is also concerned that the disclosures in an integrated report may lead to confusion as to what is “material” for the purpose of Australia’s continuous disclosure regime. This is because the IRF has a different definition of materiality than that set out in Australia’s continuous disclosure regime.

The IRF states: “An integrated report should disclose information about matters that substantively affect the organisation’s ability to create value over the short, medium and long term.” It then explains how an organisation would go about setting this materiality and then determining which relevant items should be included within an integrated report. The IRF adds: “Ordinarily, matters related to value creation that are discussed at meetings of “those charged with governance” are considered relevant.”

In contrast, the Australian Securities Exchange’s Listing rule 3.1, concerning continuous disclosures, states: “Once an entity becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity’s securities, the entity must immediately tell ASX that information.”

Company Directors is concerned that the manner in which IRF sets its materiality thresholds may inadvertently suggest the lowering of the threshold for triggering announcements pursuant to Australia’s continuous disclosure regime. This, it says, has the potential to significantly extend the range of disclosures an organisation would be required to continually monitor to ensure compliance with the continuous disclosure regime should one of the key disclosures within an integrated report change.

“The integrated report has a different underlying methodology which at its centre is the organisation’s business model. It looks at the interaction between the multiple capitals and the organisation’s strategy and focuses on how the organisation creates and sustains value over the short, medium and long term. This methodology is much broader than the OFR, which on the other hand, provides a narrative and analysis that accompanies an entity’s financial statements and provides a context to this financial information,” says Company Directors.


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