IASB consults on a new framework for management commentary reflecting changes in corporate reporting

The International Accounting Standards Board (IASB or the Board) has published for public comment a proposed comprehensive framework for companies preparing management commentaries aligned with investors’ information needs.

Management commentary—in some countries referred to as management discussion and analysis—is a report that complements a company’s financial statements.

The proposed framework represents a major overhaul of IFRS Practice Statement 1 Management Commentary. It builds on innovations in narrative reporting and would enable companies to bring together in one place the information investors need to assess a company’s long-term prospects—such as information about the company’s intangible resources and relationships and about sustainability matters that affect the company.

Management commentary would thus not only explain a company’s financial statements but also give investors insights into factors that affect a company’s ability to create value and generate cash flows, including in the long term. It would be based on information used to manage the business, including financial and non-financial metrics used to monitor performance.

The Board provides several reasons for revising PS1, including innovations in other narrative reporting frameworks and shortcomings in current reporting practice, such as insufficient focus on long-term prospects and entity specific information about intangible resources and environmental, social and governance (ESG) matters.

In developing proposals for a revised practice statement (PS), the Board wants to facilitate the process of identifying and presenting information that is useful to investors and creditors. Another objective is to provide sufficient flexibility for entities to tell their “own story” and to comply with other narrative reporting requirements or guidance, such as those applicable to sustainability reporting. The Board also aims to ensure sufficient discipline to enable external assurance and enforcement of the PS.

The proposed framework sets out disclosure objectives for information about the company’s business model, strategy, resources and relationships, risks, external environment and financial performance and position. The disclosure objectives are designed to enable companies to identify and provide information that is material to investors, and to enable regulators and auditors to assess compliance with the proposed framework.

Hans Hoogervorst, Chair of the International Accounting Standards Board, said:

“The proposed new framework provides a robust basis for bringing together in a single report financial, sustainability and other information about the matters that are fundamental to a company's long-term prospects.”

Accountancy firm EY has commented:

“While the proposals in the ED reflect a major overhaul of the requirements and guidance on management commentary, they retain many of the basic principles in PS1. The Board’s focus has been on clarifying the objective of management commentary and helping management identify and present the information needed to achieve that objective.

“It is clear that the Board sees management commentary as an appropriate location for information about ESG matters that is material to investors and creditors. It is also clear that the Board envisages the revised PS to be applied in conjunction with, for example, sustainability reporting requirements and guidance. In considering the Board’s proposals, a key question is whether they will provide sufficient guidance to help management navigate this complex reporting landscape and to identify and present entity-specific information that is material to investors and creditors in a single report.”

The deadline for comments on the Exposure Draft Management Commentary is 23 November 2021.

The Exposure Draft can be found here.

Published 5 August, 2021

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