Cover paper (Agenda Paper 15)

The staff continued presenting their findings and recommendations for disclosure objectives relating to further areas of content to be included in the Practice Statement.

Disclosure objectives for the main areas of content in management commentary are intended to support the overall objective of management commentary and its link to supporting guidance in identifying information to be provided in management commentary. 

The paper also explained the design of disclosure objectives and supporting guidance for the content areas in management commentary.

Financial resources (Agenda Paper 15A)

Staff introduced the paper which summarised the research undertaken on financial resources, and discusses possible supporting guidance to be included in the Practice Statement to support this objective.

Question 1

Summary of staff’s research

The research of the staff was focused into three areas:

• the existing Practice Statement;
• investor’s and creditor’s information needs; and
• feedback from the Board’s consultative groups.

The staff note that the existing Practice Statement contains only high level guidance on providing information about financial resources in management commentary.

The staff also note that investors and creditors need information about how an entity obtains and allocates financial resources, and that there is currently limited discussion about management’s resource allocation strategies and a lack of useful information about an entity’s key resources and relationships, including about its financial resources.

The staff discussed their initial ideas for guidance on reporting how an entity obtains and allocates financial resources with the Management Commentary Consultative Group (MCCG). Staff also discussed their initial ideas for the guidance on describing how an entity obtains financial resources and their availability with the Capital Markets Advisory Committee (CMAC) and the Global Preparers’ Forum (GPF).

Possible supporting guidance

Based on research of investors’ and creditors’ information needs, the staff have developed possible supporting guidance on reporting financial resources, focussing on information about obtaining and allocating those resources.

The Board was not asked for decisions at this meeting, but they were invited to ask questions and to comment.

Board discussion

Board members were generally supportive of the staff recommendations.

There were some observations that the suggestion that the revised Practice Statement should not require providing information about management’s assessment of sufficiency of the entity’s financial resources may be inappropriate, as investors and creditors may not be able to make such an assessment based merely on other information provided. It was also noted that there does not seem to be a concrete distinction between where it is and where it is not recommended management should disclose certain information.

It was noted that commentary on sufficiency of financial resources could be expanded, and interfaced with IAS 1 requirements relating to going concern. It was further noted that linkages to other IFRS requirements where there is interaction with the Practice Statement could be useful.

A few Board members expressed concerns that, for both financial resources in particular, but for the project generally, that expansion of the scope of management commentary, and the related guidance, could undermine the usefulness, or obfuscate the objectives of the project.

There was no vote on this paper.

Progress (Agenda Paper 15B)

Question 1

The staff recommended that information about progress in managing key matters is included in the required types of information for business model, strategy, resources and relationships, risks and external environment.

In developing requirements and guidance for the revised Practice Statement on reporting progress in management commentary, the staff considered:

• a. why information about progress is useful to investors and creditors and how that information interacts with other information in management commentary;
• b. where in the revised Practice Statement requirements and guidance on reporting progress would be best placed; and
• c. what those requirements and guidance should be.

Board discussion and voting

Board members were generally supportive of the recommendations. It was felt that these reinforce the recommendations that management commentary should have both short and long term focusses. It was also noted that this commentary may compare and evaluate the results and performance of this current reporting period with the plan from the previous reporting period.

There was some caution expressed by a few board members on the use of the word “progress”, but also a wider vocabulary of words which may have a commonly understood meaning contrary to the meaning in the Practice Statement. “Progress” in particular may encourage disclosure only when there has been improvement, rather than also assessment and discussion of problems and issues in the reporting period.

When asked to vote, the Board voted unanimously in favour of the staff recommendation.

Performance and position (Agenda Paper 15C)

Staff introduced the paper which discusses the disclosure objective for performance and position, and possible guidance supporting that objective.

The paper also summarised the research of the staff on performance and position, focusing on the existing Practice Statement, the information needs of investors and creditors, gaps in reporting practice, an overview of guidance from other standard setters, and feedback from the Board’s consultative groups.

Question 1

Does the Board agree with the recommendation that the revised Practice Statement specifies the disclosure objective for performance and position as follows?

• a. Management commentary shall provide information to help investors and creditors understand the entity’s performance and position that result from:
  • i. operation of the entity’s business model;
  • ii. executing management’s strategy;
  • iii. deploying the entity’s resources and relationships;
  • iv. managing the entity’s risks; and,
  • v. responding to factors and trends in the entity’s external environment.
• b. That information helps investors and creditors assess:
  • the key drivers of an entity’s performance and position;
  • the extent to which the entity’s performance and position reported in its financial statements are indicative of the entity’s ability to create value and generate cash flows in the future; and,
  • how the entity’s performance and position reported in its financial statements compare to previous expectations.
• c. That information shall focus on the key facets of performance and position and cover:
  • i. what the key facets of performance and position are and how management monitors those key facets;
  • ii. what affected the entity’s performance for the reporting period or could affect it in the future, including over the long term;
  • iii. what affected the entity’s position at the end of the reporting period or could affect it in the future, including over the long term; and,
  • iv. how the entity’s performance and position reported in its financial statements compare to previous expectations.

Question 2

Does the Board agree with the staff recommendation that the Practice Statement should specify that the key facets of performance and position are those that reflect the entity’s ability to create value and generate cash flows and that are monitored by the entity’s management?

Question 3

To help preparers apply the disclosure objective for performance and position recommended above, the staff considered what supporting guidance could be included in the revised Practice Statement on:

• a. identifying key facets of performance and position; and,
• b. each broad type of information identified in the disclosure objective.

The staff asked for Board members' views on this topic.

Board discussion

Question 1

Many Board members struggled with the scope of the term ‘performance and position’. One Board member said that it was not clear whether it implies a typical management discussion and analysis (MD&A), i.e. a discussion of the recognised items in the financial statements, or whether unrecognised items and non-financial information should also be included in the discussion. Many of the Board members interpret the term in a broader sense, however, the drafting should be made clear to reflect this. Either way, Board members agreed that the financial statements should be the starting point for this discussion.

There were also concerns about the articulation of the staff’s recommended objectives, especially with the detail under a. Board members expect that preparers would find it difficult to link all of the items in a. to the financial statements and therefore the drafting should be revised. However, Board members agreed that the items in a. should be linked to the financial statements where possible. Staff suggested to move the detail in a. from the objectives to the guidance by saying that in achieving the objectives, preparers should consider the detail in a., rather than making linkage mandatory.

There was also some discussion around what is meant by ‘key drivers’ and ‘key facets’ and how this related to materiality. One Board member warned that it could lead to the same issue that arose on accounting policies, which is currently being fixed.  The staff confirmed that the term ‘key’ would imply that they are managed and monitored by the management, and would lead to material information in the financial statements.

Question 2

One Board member suggested that the executive summary idea could also be used for other content elements of the Practice Statement, like risks.

Question 3

The discussion revolved mainly around the comparison of actual performance versus previously predicted performance in public forecasts. One Board member suggested that it should be ensured that the most recent forecasts are compared, while another Board member thought that different forecasts might be relevant for different purposes. One Board member suggested to define what is meant by the term ‘forecast’.

Board decision

Question 1

With the modification to move the detail in a. into the guidance, 9 of the 12 Board members supported the staff recommendation.

Question 2

All Board members agreed with the staff recommendation.

Question 3

There was no vote on this topic.

Management measures and indicators (Agenda Paper 15D)

Staff introduced the paper which discusses possible supporting guidance that could be included in the revised Practice Statement on:

• a. identifying management measures and indicators that need to be addressed in management commentary; and,
• b. information that needs to be provided in management commentary about those measures and indicators.

The paper also summarises the research of the staff on performance and position, focussing on the existing Practice Statement, the information needs of investors and creditors, gaps in reporting practice, an overview of guidance from other standard setters, and feedback from the Board’s consultative groups.

The Board is not asked for decisions at this meeting, but they are invited to ask questions and to comment.

Board discussion

There was some confusion about the relationship between management measures and indicators (MMIs), adjusted MMIs and management performance measures (MPMs) as defined in ED/2019/7 General Presentation and Disclosures. The staff clarified that MPMs are a subset of adjusted MMIs, but MMIs also include any non-financial measures. The staff said that often MMIs are required by regulators and then taken over into the management commentary. One Board member was concerned however that if regulators impose MMIs, it would not necessarily be a management measure or indicator. One Board member asked whether entities would be allowed to cross-reference to MPMs in the financial statements, which the staff confirmed would be appropriate. In fact, staff wanted to avoid any duplications, so if MPMs are defined in the financial statements, they would encourage a cross-reference rather than a duplication of the definition. One Board member suggested that if an MMI comes from a regulatory framework, that fact should be disclosed.

There was no vote on this topic.