The CA Institute has sought stakeholders comments on International Accounting Standards Board’s new exposure draft of revised “Practice Statement on Management Commentary” that is intended to help entities provide management commentaries that better meet the information needs of investors and creditors.
This exercise is seen as useful given that investors and creditors these days ask for information that complements an entity’s financial statements to provide more insights into its long term prospects. Stakeholders have been asked to send their comments by October 1 this year, sources close to the development said.
The IASB’s main aim in revising the practice statement is to develop comprehensive requirements that focus on information that investors and creditors need and guidance to help management identify that information and present clearly.
IASB’s proposals are designed to provide sufficient flexibility for a company to be able to tell its unique story, focusing on what is important to the company’s long-term prospects. It also seeks to provide an affective basis for regulators to enforce the revised practice statement and for auditors to assess compliance with it.
Better Communication in Financial Reporting
Revising the Practice statement on management commentaries is one of the projects on Better Communication in Financial Reporting that the IASB is undertaking. It may be recalled that the IASB’s earlier Practice Statement on Management Commentaries was issued in December 2010.
This had provided a non-binding framework for the presentation of management commentary that related to financial statements prepared in accordance with IFRS standards. The Practice Statement had outlined the main elements of the information that should always be included in a management commentary.
Management commentary is intended to equip users of financial statements with integrated information providing a context for the related financial statements, including the entities resources and the claims against their entity and its resources, and the transactions and other events that change them. It also provides management with an opportunity to explain its objectives and strategies for achieving those objectives.
However, since the issue of the 2010 practice statement, many jurisdictions and organisations have published requirements or guidelines for preparing management commentary or similar report or detailed topic specific or industry-specific requirements and guidelines that cover aspects of narrative reporting — for example, the reporting on environmental social and governance (ESG).
These developments have created a complex and confusing landscape in which entities maybe unclear whether and how, in preparing management commentary, they can apply various alternative topic-specific for industry-specific requirements and guidelines, some of which are designed to provide information that is useful to users other than investors and creditors.
The IASB identified short-comings in practice which include management commentaries failing to focus on matters important to the entity’s prospects by failing to provide material information about such matters or by obscuring such information with immaterial information about less important matters and containing too much generic information and not enough entity specific information.
All these and other several shortcomings are sought to be addressed in the Revised Practice Statement for which exposure draft has been issued.