IASB publishes exposure draft of revised Practice Statement on Management Commentary

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May 27, 2021

On May 27, 2021, the International Accounting Standards Board (IASB) published the exposure draft "Management Commentary" in an effort to update the 2010 IFRS Practice Statement 1 "Management Commentary". Comments are requested by November 23, 2021.



At its meeting in March 2017, the IASB generally agreed that they should be playing a more active role in wider corporate reporting. At the meeting in November 2017, the Board members decided preliminarily that being the specialists in financial reporting they are best placed to provide the link between financial and non-financial information and the best way forward would be to revise the Management Commentary Practice Statement so that it could serve as an anchoring point for other frameworks. One of the key points to address would be to promote alignment between financial and ‘other’ information disclosed by an entity.

Since the IASB's decision to revise the Practice Statement, reporting on sustainability and ESG aspects has gained a lot of traction and the information needs of investors and creditors have evolved. Independently of the IASB’s work on management commentary, the Trustees of the IFRS Foundation have taken up an initiative on sustainability reporting and are currently considering setting up a board for setting IFRS sustainability standards. The IASB's project on management commentary and the initiative of the IFRS Foundation are connected in that entities would be able to use the standards issued by the new sustainability standards Board to to help them identify some of the information needed to comply with the revised Practice Statement


Key proposals

The proposals in ED/2021/6 Management Commentary are divided into three parts, each of which has several subsections:

  • Part A — General requirements. This part specifies requirements for identifying management commentary and the related financial statements, for authorizing management commentary and for including a statement of compliance. It also sets out the objective of management commentary. Key proposals are:
    • Management commentary identifies the financial statements to which it relates. If the related financial statements are not prepared in accordance with IFRSs, the management commentary would disclose the basis on which the financial statements are prepared.
    • Management commentary that complies with all requirements of the Practice Statement includes an explicit and unqualified statement of compliance.
    • Management commentary that complies with some, but not all, of the requirements of the Practice Statement may include a qualified statement of compliance that identifies the departures from the requirements of the Practice Statement and gives the reasons for those departures.
    • The objective of management commentary is to provide information that enhances investors' and creditors’ understanding of the entity’s financial performance and financial position reported in its financial statements and provides insight into factors that could affect the entity’s ability to create value and generate cash flows across all time horizons, including in the long term.
  • Part B — Areas of content. This part specifies six areas of content for management commentary, and requires management commentary to provide information that meets disclosure objectives for each of those areas of content. It also includes the requirement that management commentary should focus on key matters. Key proposals are:
    • The proposed six areas of content are:
      • the entity’s business model,
      • management’s strategy for sustaining and developing the entity’s business model,
      • the entity’s resources and relationships,
      • risks to which the entity is exposed,
      • the entity’s external environment, and
      • the entity’s financial performance and financial position.
    • The proposed disclosure objectives for the areas of content are:
      • a headline objective describing the overall information needs of investors and creditors for the area of content,
      • assessment objectives describing the assessments that rely on information provided for the area of content, and
      • specific objectives describing the detailed information needs of investors and creditors for the area of content.
    • Key matters that management commentary should focus on are:
      • key features of the entity’s business model,
      • key aspects of management’s strategy,
      • key resources and relationships,
      • key risks,
      • key factors and trends in the external environment, and
      • key aspects of financial performance and financial position.
    • Generally, an entity would report on matters that could affect the entity’s long-term prospects, on intangible resources and relationships, and on environmental and social matters.
  • Part C — Selection and presentation of information. This part contains guidance on the selection of information to include in management commentary and the presentation of that information. Key proposals are:
    • In the context of management commentary, information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that investors and creditors make on the basis of the management commentary and of the related financial statements.
    • Identifying material information requires management to apply judgement.
    • Information about a matter may be material because of the nature or magnitude of that matter, or a combination of both.
    • Information about possible future events that have not yet affected the entity’s financial performance or financial position may be material depending on the potential effects of the events on the amount and timing of the entity’s future cash flows.
    • Materiality judgements need to be reassessed each reporting period.
    • Information provided in management commentary must be complete, balanced, accurate as well as clear and concise.
    • Information in management commentary is more useful if it is comparable, verifiable, and coherent.
    • Metrics used to describe material information in management commentary should be derived from metrics that management uses to monitor key matters and to measure progress in managing those matters.

The deadline for submitting comments on these proposals is November 23,  2021.


Effective date and status of the Practice Statement

The exposure draft proposes that the Practice Statement would supersede IFRS Practice Statement 1 Management Commentary for annual reporting periods beginning on or after the date of its issue. The Practice Statement is not an IFRS and its application is not mandatory. Financial statements can comply with IFRSs even if they are not accompanied by management commentary or if they are accompanied by management commentary that does not comply with the Practice Statement.


Additional information

Review the following additional information on the IASB's website:


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