Management Commentary
Management Commentary provides a context within which to interpret the financial position, financial performance and cash flows of an entity can be interpreted. It also provides an opportunity to understand management’s objectives and its strategies for achieving those objectives. Users of financial reports in their capacity as capital providers routinely use the type of information provided in management commentary as a tool for evaluating an entity’s prospects and its general risks, as well as the success of management’s strategies for achieving its stated objectives.
For many entities, management commentary is already an important element of their communication with the capital markets, supplementing as well as complementing the financial statements. Management commentary encompasses reporting that is described in various jurisdictions as management’s discussion and analysis (MD&A), operating and financial review (OFR), or management’s report.
The Board’s proposals are intended to provide a basis for the development of good management commentary. It offers a non-binding framework and limited guidance on its application, which could be adapted to the legal and economic circumstances of individual jurisdictions. The exposure draft focuses on publicly traded entities; however, to the extent that the framework is deemed applicable, it may be a useful tool for non-exchange traded entities, for example, privately-held and state-owned enterprises.
The proposals presented in the exposure draft will not result in an International Financial Reporting Standard (IFRS). Accordingly, it would not be a requirement for an entity to comply with the framework for the preparation and presentation of management commentary as a condition for asserting compliance with IFRS.
Where are we in the project?
The International Accounting Standards Board (IASB) issued an exposure draft on management commentary in June 2009. Click here to access the exposure draft.
Next steps
The exposure draft is open for comment until 1 March 2010. Deliberations of issues raised by respondents are tentatively scheduled to begin in Q2 2010.
Related projects
Conceptual Framework for Financial Reporting
The exposure draft is prepared on the basis that management commentary is within the boundaries of general purpose financial reporting and, therefore, must be fully consistent with the broader conceptual framework for financial reporting. In developing its proposals for management commentary, the Board looked to its recent work on the objective and qualitative characteristics of financial reporting. Consequently, the management commentary exposure draft should be read in the context of the Phase A Framework ED (issued in May 2008).
The management commentary project complements Phase E of the conceptual framework. Phase E: Presentation and Disclosure is the stage of the conceptual framework project that will develop principles for financial reporting disclosure and formalise the boundaries of financial reporting. The Board intends that Phase E will build upon the work done in the management commentary project.