The International Accounting Standards Board (IASB) 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 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.
IFRS Standards do not require companies to provide management commentary—this is unchanged by the proposed new framework. However, regulators may require companies to provide management commentary in accordance with the proposed framework or companies may choose to do so. The IASB envisages that companies would be able to apply the proposed framework along with national reporting requirements and in conjunction with frameworks that address particular topics, such as sustainability matters.
Hans Hoogervorst, Chair of the IASB, 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.”
The deadline for comments on the Exposure Draft Management Commentary is 23 November 2021.
Parallel to the IASB’s consultation on the proposed framework, the IFRS Foundation Trustees are working on proposals for creating a new International Sustainability Standards Board (ISSB). Standards that would be set by the ISSB are one example of requirements that could be used in conjunction with the proposed framework to meet investors’ information needs.
The IASB’s Press Release can be accessed at www.ifrs.org.
27 May 2021