Companies' Business Reviews

Trade and Industry written question – answered at on 4 May 2006.

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Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice), Shadow Solicitor General

To ask the Secretary of State for Trade and Industry when the Government will announce the findings of its consultation on the proposed content of companies' business reviews.

Photo of Alun Michael Alun Michael Minister of State (State (Industry and the Regions)), Department of Trade and Industry

holding answer 2 May 2006

Yesterday we laid amendments to Chapter 6, Part 15 of the Bill in order to give effect to changes to the content of companies' business reviews. As part of our proposals, we also intend to clarify the position on liability for disclosures under the Companies Act and for implementation of the EU Transparency Obligations Directive. Draft clauses on a proposed regime for liability have been published via the DTI website (at http://www.dti.gov.uk/cld/facts/clr.htm) for a short period for public comment. This package of proposals represents consistent and balanced policy after considering carefully the responses to the consultation and engaging in discussion with interested parties on the whole range of options for narrative reporting.

The requirements for narrative reporting have been streamlined so that the requirements for quoted companies are closely aligned to those for unquoted companies. The proposed new narrative reporting arrangements include the requirement that all companies will need to produce a business review, as required by the EU Accounts Modernisation Directive. The amendments make clear that the purpose of the review is to inform shareholders of the company and help them assess how the directors have performed their duty under section 156 (duty to promote the success of the company). Quoted companies will need to ensure that, to the extent necessary for an understanding of the development, performance or position of the company's business, their business review includes:

(a) the main trends and factors likely to affect the future development, performance and position of the company's business; and

(b) information about:

(i) environmental matters (including the impact of the company's business on the environment),

(ii) the company's employees, and (iii) social and community issues, including information about any policies of the company in relation to those matters and the effectiveness of those policies.

Directors will need to state in their Review if they do not think it necessary to include information about (i), (ii) or (iii) above.

The new system will also mean that for all companies:

Auditors will continue to be required to report on the consistency of the directors' report with the annual accounts (as is required by the Accounts Modernisation Directive) but there will not be any additional requirement to check for other inconsistencies;

All companies will be exempted from disclosing in the business review information which is seriously prejudicial to the company's interests. This exemption was previously only provided for companies that had to produce an OFR; and

There will be no statutory reporting standards for the Business Review.

The draft clauses on liability cover:

Provision for liability under Part 15 of the Bill for directors' reports, directors' remuneration reports or summary financial statements derived from them;

Provision for liability for disclosures under Transparency Obligations Directive implementation;

Liability for untrue or misleading statements or omissions made in bad faith or recklessly or where there is deliberate and dishonest concealment.

The Government's aim has always been to encourage meaningful strategic, forward-looking information to assist shareholder engagement, while avoiding disproportionate burdens on business. The Government have decided that the additional burden imposed by the statutory OFR requirement is not justified in light of the competitiveness of UK businesses. The changes to narrative reporting requirements announced yesterday will add value to the quality of reporting without imposing unnecessary costs.

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