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IFRS Practice Statement 'Management Commentary'

History of IFRS Practice Statement Management Commentary

2002 Project team established (involving Germany, New Zealand, United Kingdom and Canada)
27 October 2005 Discussion Paper Management Commentary published by IASB
December 2007 Project moved from research agenda to active agenda
23 June 2009 Exposure Draft Management Commentary published by IASB
8 December 2010 IFRS Practice Statement Management Commentary published by the IASB

Summary of IFRS Practice Statement Management Commentary

Objective

The objective of this Practice Statement is to assist management in presenting useful management commentary that relates to financial statements that have been prepared in accordance with International Financial Reporting Standards (IFRSs).

The Practice Statement is not an IFRS. Consequently, entities applying IFRSs are not required to comply with the Practice Statement, unless specifically required by their jurisdiction. Furthermore, non-compliance with the Practice Statement will not prevent an entity's financial statements from complying with IFRSs, if they otherwise do so.

Scope

The Practice Statement should be applied by entities that present management commentary that relates to financial statements prepared in accordance with IFRSs. It applies only to management commentary and not other information presented in financial statements or broader financial reports.

Management commentary is defined as:

"A narrative report that relates to financial statements that have been prepared in accordance with IFRSs. Management commentary provides users with historical explanations of the amounts presented in the financial statements, specifically the entity's financial position, financial performance and cash flows. It also provides commentary on an entity's prospects and other information not presented in the financial statements. Management commentary also serves as a basis for understanding management's objectives and its strategies for achieving those objectives."

Framework

Management commentary should provide users of financial statements (existing and potential investors, lenders and other creditors) with integrated information providing a context for the related financial statements, including the entity's resources and the claims against the entity and its resources, and the transactions and other events that change them.

Management commentary should be consistent with the following principles:

  • Provide management's view of the entity's performance, position and progress (including forward looking information)
  • Supplement and complement information presented in the financial statements (and possess the qualitative characteristics described in the Conceptual Framework for Financial Reporting)

Presentation

Management commentary should be clear and straightforward and be presented with a focus on the most important information in a manner intended to address the principles described in the Practice Statement, specifically:

  • being consistent with its related financial statements
  • avoiding duplicating disclosures made in the notes to the financial statements where practicable
  • avoiding generic and immaterial disclosures.

Elements of management commentary

Although the particular focus of management commentary will depend on the facts and circumstances of the entity, management commentary should include information that is essential to an understanding of the five elements discussed in the table below. The table links these elements with the IASB's assessment of the needs of the primary users of management commentary:

ElementUser needs
The nature of the business The knowledge of the business in which an entity is engaged and the external environment in which it operates
Management's objectives and its strategies for meeting those objectives To assess the strategies adopted by the entity and the likelihood that those strategies will be successful in meeting management's stated objectives
The entity's most significant resources, risks and relationships A basis for determining the resources available to the entity as well as obligations to transfer resources to others; the ability of the entity to generate long-term, sustainable net inflows of resources; and the risks to which those resource-generating activities are exposed, both in the near term and in the long term
The results of operations and prospects The ability to understand whether an entity has delivered results in line with expectations and, implicitly, how well management has understood the entity's market, executed its strategy and managed the entity's resources, risks and relationships
The critical performance measures and indicators that management uses to evaluate the entity's performance against stated objectives The ability to focus on the critical performance measures and indicators that management uses to assess and manage the entity's performance against stated objectives and strategies

Application date

An entity may apply the Practice Statement to management commentary presented prospectively from 8 December 2010.