The CA Institute has solicited stakeholder comments on the International Accounting Standards Board’s new Exposure Draft, âPractice Statement on Management Commentary,â which aims to help entities provide management commentary that better meets the needs of the organization. information for investors and creditors.
This exercise is considered useful given that investors and creditors today ask for information that complements an entity’s financial statements in order to better understand its long-term outlook. Stakeholders have been invited to send in their comments by Oct. 1 of this year, sources familiar with the development said.
The main objective of the IASB in revising the Practice Statement is to develop comprehensive requirements focused on the information investors and creditors need and guidance to help management identify this information and present it clearly. .
The IASB’s proposals are designed to provide sufficient flexibility for a business to tell its unique story, focusing on what is important to the long-term prospects of the business. It also aims to provide an effective basis for regulators to apply the revised practice statement and for auditors to assess compliance with it.
Better communication in financial reports
The review of the management commentary practice statement is one of the better financial reporting projects the IASB is undertaking. It should be recalled that the previous IASB practice statement on management comments was issued in December 2010.
This had provided a non-binding framework for the presentation of management comments on financial statements prepared in accordance with IFRS. The practice notice had described the main pieces of information that should always be included in a management commentary.
The management commentary is intended to provide users of financial statements with integrated information that provides context for the corresponding financial statements, including the resources of entities and claims against their entity and its resources, and the transactions and other events that modify them. It also gives management the opportunity to explain its goals and strategies to achieve those goals.
However, since the publication of the 2010 Practice Statement, many jurisdictions and organizations have published requirements or guidelines for the preparation of management comments or a similar report or specific detailed requirements and guidelines. a topic or business line that covers aspects of the narrative report – for example, on social environment and governance (ESG).
These developments have created a complex and confusing landscape in which entities may not be aware of whether and how, when preparing for management comments, they can apply various topic-specific alternatives for specific requirements and guidelines. industry, some of which are designed to provide useful information. to users other than investors and creditors.
The IASB has identified gaps in practice, including comments from management that do not focus on matters important to the entity’s outlook by failing to provide material information on those matters or by obscuring such information with insignificant information on less important matters containing too much generic information and not enough entity-specific information.
All of these shortcomings and more are sought to be addressed in the revised practice statement for which the Exposure Draft was issued.