Management commentary practice statement

Date recorded:

Management Commentary [Agenda paper 15]


In November 2017 the IASB decided to update its Management Commentary Practice Statement. The project will consider the developments that have taken place since 2010. The Board thinks the project will answer calls for it to play a more active role in wider corporate reporting. The Board intends to retain the guidance as a Practice Statement, with a principles-based framework so that it can be used in conjunction with other frameworks and codes and to build on the best practices currently available.

In March 2018, the Board announced the creation of a consultative group to support the project and provide the Board with access to practical experience and expertise in developing, implementing and using management commentary regimes. The deadline for applications is 20 April 2018.

At this meeting the staff will give a presentation that sets out the approach they propose taking in updating the Practice Statement.

Education Session [Agenda paper 15A]

This presentation reminds the Board that Management Commentary is a narrative report that provides financial and non-financial information useful to users of financial reports. It is information outside the financial statements that assists in the interpretation of a complete set of financial statements or improves users' ability to make better economic decisions. Other bodies are also interested in this area of reporting, including the International Integrated Reporting Framework, national narrative reporting frameworks and some subject matter (e.g. Carbon Disclosure Standards Board) and sector based (e.g. Sustainability Accounting Standards Board) frameworks.

Management commentary is part of wider corporate reporting and it is important for the Board to have a clear understanding of the scope of its activities and how management commentary fits into the broader framework.

The current Management Commentary Practice Statement is a principles based non-binding framework for presenting investor-relevant narrative content based on the specific circumstances of the business. The staff do not expect that change. However, the update could support a more rigorous approach to determining which matters to address and the information to provide in the management commentary

The staff note that innovations from the International Integrated Reporting Framework and national narrative reporting frameworks build on the IASB’s Management Commentary and those developments will be considered in updating the Practice Statement.

The main concepts they expect to shape the update are (a) value creation, which puts more emphasis on long term prospects; (b) the business model and strategy provide a focus for building the report; (c) integration and linkage ensure key issues are followed across the report; (d) key resources and intangibles also support a long-term focus; and (e) materiality. The staff do not envisage that the update will prescribe detailed industry or subject-matter specific measures.

The staff think a Management Commentary prepared in accordance with a revised Practice Guide could provide insights into the company’s strategy for creating shareholder value over time, its progress in implementing it, and the potential impact on future financial performance not yet captured by the financial statements. In particular, management commentary can provide complementary information to support longer-term decision making and provide better support for the interpretation of the financial statements, particularly given the growing importance of intangible business resources and relationships.

The presentation includes illustrations of the types of information they expect to see in Management Commentary.

Staff recommendations

The Board is being asked for feedback, but is not being asked to make any decisions.


The Chair said that Management Commentary is important because it provides a platform for explaining things the financial statements are unable to provide. For example it can be used to explain the entity’s long term strategy. Most of this is implied in the Practice Statement but it is not explicit enough. He also said that what should be part of any long term strategy is the remuneration policy and how KPIs affect the long-term strategy. Another member mentioned the capital allocation policy and emphasised that as well as content, style can be important. Another member agreed.

One member said that the Board is not intending to make this mandatory so should stick to principles. The Chair said that the opposite is equally true. Because it is not mandatory you can provide more detailed and helpful guidance.

One member said the labelling of the project made I difficult for people to find because the Board has been discussing wider corporate reporting.

The label “non-financial” is a difficult phrase to use. The staff experimented with “pre-financial information” because it leads to the financial information. The Chair agreed and said that these labels need to be clear and understood. He preferred “broader financial reporting” or something like that. Management Commentary is the vehicle for thinking about broader corporate reporting. The staff noted that the term Management Commentary is a helpful title for the document.

The Vice-Chair asked about the linkage and how far they might go. The staff said that the main focus was on the annual report, because this was the most common reporting requirement. They said that the idea of getting proper linkage will require a significant shift, or change, in how the reports are written. The Chair was concerned that most managers would struggle because it is too theoretical.

The Board was not asked to make any decisions. In summarising the staff took away that the Management Commentary should address long-term value creation, linkage and providing context to the current performance. They need to be cautious about the language they use in communicating about the project and how it fits into broader corporate reporting.

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