Management commentary

Date recorded:

Enhancing qualitative characteristics in management commentary (Agenda Paper 15A)

The paper discussed what guidance the revised Practice Statement should include relating to the enhancing qualitative characteristics. The existing Practice Statement states that information in management commentary should maximise the enhancing qualitative characteristics of comparability, verifiability, timeliness and understandability—limited guidance relating only to comparability is provided. The paper summarised the results of their research from various sources including, outreach, investigation of other frameworks and to the IASB Conceptual Framework.

Staff recommendations, Board discussion and decisions

Staff recommended that this section of the revised Practice Statement should include plain language descriptions of the characteristics and to fill any gaps evident in the existing Practice Statement.

The staff asked whether the Board members agree with the following, specific recommendations:


The staff recommended that the revised Practice Statement:

  • a) includes a description of comparability based on paragraphs 2.24, 2.26 and 2.28 of the Conceptual Framework;
  • b) explains that although comparability with other entities is desirable, this should not override the requirement to provide relevant entity-specific information;
  • c) states that in preparing management commentary, management should consider the fact that primary users need to make comparisons with information provided by other entities, information reported in management commentary in previous periods and other information published by the entity; and
  • d) requires management to:
    • i) explain assumptions and methods of calculation used in producing a performance measure, and state whether this is a common industry metric;
    • ii) explain changes in assumptions and methods of calculation from the previous year and the reason for the changes;
    • iii) highlight when new information is provided on a matter reported in the previous management commentary;
    • iv) provide comparative information for each performance measure over a period appropriate to show the emergence of trends; and
    • v) consider whether information presented in management commentary is consistent with information reported in the entity’s financial statements, in investor presentations, in other reports in the public domain, or on the entity’s website.

The Board members offered a few drafting suggestions for the staff to consider. These suggestions related primarily to: the time and effort a preparer would take to identify ‘common industry metrics’, the focus thereon rather than on common metrics that are not necessarily industry metrics and the need to highlight all new information on previously raised matters was highlighted as a concern by a few members.

Staff stated that their intended aim was to ensure that information be provided where a new measure is introduced, where a measure has changed or where a measure is no longer used—this could be achieved through more focused drafting.

When asked to vote, 13 Board members voted in favour of the recommendations with one member being absent.


The staff recommended that the revised Practice Statement:

  • a) includes in its discussion of understandability, the guidance in the existing Practice Statement on presentation;
  • b) includes a specific requirement, based on the description of understandability in the Conceptual Framework, to the need to consider conciseness;
  • c) permits incorporation of information in the management commentary by cross-reference, subject to the overarching principle that the information incorporated by cross-reference is part of the management commentary, and therefore must possess the qualitative characteristics of useful financial information. To help management apply the overarching principle, the revised Practice Statement would include guidance:
    • i) to enhance the understandability of management commentary when information is incorporated by cross-reference; and
    • ii) on conditions that a report containing the information to be incorporated by cross-reference must meet.

Discussion focused on the issue of cross-referencing. The primary concern raised related to the interaction between a non-mandatory Practice Statement and local jurisdiction legislation which would override the non-mandatory Practice Statement. Some jurisdictions may be stricter on cross-referencing than the recommendations provided and others may be less strict or silent.  There was general support for the approach but it was suggested by one Board member that the revised Practice Statement should remain silent about cross-referencing entirely and rely on local law. Concerns were raised with regard to this approach, especially as they related to jurisdictions with little guidance provided to preparers.

When asked to vote, 12 Board members voted in favour of the recommendations with two members being absent.


The staff recommended that the revised Practice Statement:

  • a) includes a description of verifiability based on paragraphs 2.30 and 2.32 of the Conceptual Framework;
  • b) requires management to:
    • i) distinguish information based on judgement from factual information; and
    • ii) explain the process and sources used to produce the information and its limitations and describe assumptions and methods of calculation used; and
  • c) retains the statement that it does not mandate the level of assurance to which management commentary should be subjected.

The discussion highlighted the difficulty for preparers in distinguishing between factual and judgemental information and how this may not be practicably possible in certain instances. It was suggested that areas reliant on a high degree of judgement be clearly identifiable.

When asked to vote, 13 Board members voted in favour of the recommendations with one member being absent.


The staff recommended that the revised Practice Statement:

  • a) includes a description of timeliness based on paragraphs 2.33 of the Conceptual Framework;
  • b) states that management commentary is more useful if it is published at the same time as the financial statements or soon after them.

A number of Board members were concerned that too much effort was being made to tie the revised Practice Statement to the Conceptual Framework and, in doing so, non-essential guidance would be introduced in to the Practice Statement.

Only six Board members voted in favour of these recommendations, so these will be removed.

Introduction to business model (Agenda Paper 15B)

The paper was for information only and no decisions have been asked for.

As an introduction to any future Board discussions, staff provided the Board with an overview of their research relating to business model and provided questions for the Board to consider when developing related guidance.

The staff’s initial proposals for guidance on the business model for the revised Practice Statement include:

  • a) explaining the role of the business model description as the foundation for a coherent narrative that is necessary for users’ understanding of:
    • i) trends reflected in financial statements; and
    • ii) matters identified in other parts of management commentary that could affect the prospects for future net cash inflows to the entity;
  • b) specifying the following components of the description of the business model: structure (legal and operating) and business activities (inputs, processes, outcomes and impacts) to provide a structured approach to preparing management commentary;
  • c) explaining the features of the business model on which the description should focus, for example, on those features that give an entity a competitive advantage;
  • d) providing guidance to help entities identify resources and relationships that the entity depends on and effects of the entity’s activities on those resources and relationships.

During the discussion, Board members requested that staff keep things as simple as possible while being careful when using terms that may have different meanings to different groups (including ‘value’, ‘impact’ and ‘sustainability’) who may think of more non-financial aspects of business, too.

Quite simply, the business model of an entity is ‘how it makes money’ and the link to cash flows is important. Further, any guidance should highlight the need of a preparer to provide information necessary to users to make their own decision regarding the ‘sustainability’ of the entity’s business model (how it can ‘continue to make money’).

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