Management Commentary

Date recorded:

Management commentaries are also called Management's Discussion and Analysis or Operating and Financial Review.

The meeting was asked to provide 'conditional clearance' on a Preliminary Views Discussion Paper on management commentary (MC), which has been prepared by a working group of staff from standard-setters in Canada, Germany, New Zealand (lead) and the UK. The project staff hopes to have the document issued in September or October 2005.

The project team had prepared the draft discussion paper from the point of view that the annual report was a package containing the financial statements, MC and other material. However, the project team did not think that it was appropriate to include MC within the 'IFRS assertion' that applies to the financial statements. Consequently, the discussion paper is to be silent on the attestation requirements attaching to MC.

The staff noted that the project team had held productive discussions with IOSCO (securities regulators) and IFAC, whose feedback had helped to refine the draft discussion paper. One of the principal sensitivities was the differentiation between items reported in the financial statements (including footnotes) and that reported in MC.

Board Members held a wide-ranging discussion of the draft discussion paper (Observers did not have a copy of this document). One of the concerns expressed was that the project staff had prepared the discussion document from an apparent point of view that MC was 'a good thing' and proceeded to develop something that looked much like an exposure draft. This approach was dissimilar to that in the forthcoming discussion document on measurement, which sets out alternative views. This difference in style should be explained carefully when the document is issued.

Board Members expressed concerns with the project team's use of the IASB Framework's qualitative characteristics in the MC context. They were afraid that using carefully crafted words in a context other than financial reporting was potentially dangerous. For example, MC (being management's self-assessment) could never be 'neutral', since management's bias would be inherent. Similarly, a proper aim in MC would be consistency (as opposed to the Framework's comparability): the MC should address matters on a consistent basis from year to year.

The Board Members reviewed the proposed Questions to Recipients (available in the Observer Notes). The questions will be redrafted and submitted to the July 2005 Board meeting for further discussion.

The Board agreed that the discussion paper should be issued (10 in favour; 3 opposed; 1 abstention). The Board Advisors on the project should be responsible for the detailed review of the text. During that review, they would bear in mind the comments and concerns expressed at this session and would bring any critical matters to a subsequent Board meeting, similar to other 'sweep issues.'

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