Compliance budgets threatened by OFR cut

Funds allocated to improve corporate reporting may now be withdrawn

Brown has cut out OFR red tape

The government’s decision to scrap new corporate reporting requirements may encourage companies to slash IT budgets for compliance, experts warned last week.

Operating and Financial Review (OFR) rules would have required quoted companies to offer greater detail about their business performance in areas such as corporate governance and environmental practices. Reports were due as early as April 2006.

But at a CBI conference last week, chancellor Gordon Brown said he would axe the rules as part of a drive to cut the regulatory burden on UK firms. The move was welcomed by the CBI, a long-term campaigner against red tape.

However, critics said the decision could be seen by some firms as an opportunity to cut investment in reporting technology. Jason Goodwin of business intelligence software vendor SAS Institute said IT directors should resist any pressure to scrap OFR-related projects, as reporting tools that monitor key performance indicators can improve corporate decision-making.

John Taylor of business performance management software vendor Cartesis agreed. “Visibility over performance helps you react faster to changes in the market. At the heart of the OFR is best practice,” he said.

Axing OFR projects may also leave firms unprepared for other changes. For example, the Association of British Insurers will shortly discuss incorporating OFR requirements into the Combined Code on Corporate Governance, which quoted firms must comply with.

And firms can benefit from voluntarily publishing OFR-style reports, said Mike Davis of analyst Butler Group. “OFRs can be used as a marketing tool to prove to investors your firm has good governance,” he said.

In a separate move, the chancellor’s pre-budget report today is expected to contain plans to make it easier to gain tax credits for technology research and development. Under the scheme, tax inspectors will have training to ensure valid R&D claims are approved.