The International Accounting Standards Board (IASB) has developed proposals for a comprehensive new framework that would enable companies to bring together in management commentary the information investors and creditors need to assess a company’s long-term prospects. Such information would include information about the company’s intangible resources and relationships and about sustainability matters affecting the company. That framework would replace IFRS Practice Statement 1 Management Commentary.
The IASB is proposing an objectives-based approach that specifies an objective for management commentary, supported by:
(a) a requirement for management commentary to provide information that is material to investors and creditors, and to focus on key matters —that is, matters that are fundamental to the entity’s ability to create value and generate cash flows, including in the long term.
(b) requirements to provide information that meets specified disclosure objectives. The disclosure objectives derive from the information needs of investors and creditors, and include descriptions of the assessments that rely on information provided in management commentary.
(c) guidance that provides examples of possible key matters and of information, including metrics, that management commentary might need to provide to meet the disclosure objectives.
(d) requirements for information to possess specified attributes—for example, completeness, balance and accuracy—and guidance to help management identify information that possesses those attributes.
The IASB’s proposals are designed to provide both:
(a) 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; and
(b) an effective basis for regulators to enforce the revised Practice Statement and for auditors to assess compliance with it.
Financial statements can comply with IFRS Standards even if they are not accompanied by management commentary, or if the accompanying management commentary does not comply with the Practice Statement. The Board does not propose any changes to those conditions.
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Invitation to comment
The Exposure Draft is open for comment until 22 October 2021.
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