Management commentary

Date recorded:

Cover paper (Agenda Paper 15)

In previous meetings, the Board has discussed the objective of management commentary, guidance on the characteristics of useful information in management commentary and particular aspects of guidance on the business model.

At this meeting, the staff presented further work relating to the objective of management commentary (refer to Agenda Paper 15A) and disclosure objectives for particular types of content in management commentary (refer to Agenda Paper 15B).

The objective of management commentary (Agenda Paper 15A)

The staff provided a recap of previous Board discussions relating to the topic (please refer to the summary of the November 2018 meeting) in addition to providing explanations for their latest recommendations.

In this meeting, the staff asked the Board whether they agree that the Practice Statement:

  • (a) describes the objective of management commentary as follows:

    The objective of management commentary is to support primary users in assessing an entity’s prospects for future cash flows and assessing management’s stewardship of the entity’s economic resources by providing useful information and analysis which:
    • (i) enhance the primary users’ understanding of the entity’s performance and position as depicted in the related financial statements; and
    • (ii) give insight into factors that could affect the entity’s prospects.
  • (b) retains the statement that management commentary is prepared for existing and potential investors, lenders and other creditors and refers to them as ‘primary users’; and
  • (c) explains that primary users are expected to have a reasonable knowledge of business and economic activities and to review and analyse the information diligently, but are not expected to have knowledge of the entity.

Discussion and voting

The discussion around the objective of management commentary focused on the link between the ‘prospects for future cash flows’ and ‘value creation’. Many Board members want to ensure that this link is clearly identified early in the Practice Statement. Furthermore, ‘value creation’ is to be considered in the narrow sense i.e. the creation of value for the entity and its shareholders. In addition, it should be clarified that something may be value-creating despite the actual cash flows only occurring in the distant future.

When asked to vote on (a) above, taking into account suggestions provided regarding clarifications and drafting, 13:1 Board members voted in favour of the staff recommendation.

When discussing the primary users and their assumed knowledge, there was general agreement with the staff’s recommendation. Two clarifications were sought: that the primary users are expected to have a general knowledge of business and economic activities, rather than an entity-specific knowledge; and how standing information was to be treated.

Staff confirmed that a general knowledge, consistent with the Conceptual Framework, was assumed for users. Given this, standing information in management commentary is important, as users are not expected to have entity-specific knowledge. As a result, management commentary should not just highlight changes from year to year but should contain some standing information, but drafting could help preparers to assess what this should be.

When asked to vote on (b) and (c) above, 14 Board members voted in favour of the staff recommendation.

The staff also provided a discussion of the related supporting guidance that could be included in the revised Practice Statement. This could include guidance on management’s view and the types of information in management commentary. No vote was required and the Board made limited comments centred on terminology, specifically non-financial and operational.

Disclosure objectives (Agenda Paper 15B)

The staff introduced their thinking on developing disclosure objectives for various types of content to be included in management commentary. Staff suggest that, for each type of content in management commentary, an explicit disclosure objective be introduced and guidance should be provided to assist preparers to meet each disclosure objective.

This seeks to assist preparers in identifying what information they should provide to help primary users to assess the entity’s prospects for future cash flows and management’s stewardship and for regulators and assurers to determine whether management commentary meets its objective.

The Board was not be asked for decisions at this meeting, but they were asked to comment.


A few Board members mentioned that, despite the staff saying that the order of topics provided was not an indicator of how information should be presented, they should consider that some preparers may decide to follow any order provided.

The layout the practice statement was discussed and it was clarified that staff intend to present each objective with the related guidance and disclosures rather than creating a single disclosures section.

The linkage, replication and consistency of information provided was also discussed.

Next steps

The staff intend to bring further topics in clusters based on the interaction between topics. For example, business model, resources and relationships and strategy and opportunities; operating environment and risks and performance, position and progress, will be grouped together.

Further discussions will take place in the future relating to the status of the Practice Statement and the approach to be taken in developing guidance in support of the disclosure objectives.

Related Topics

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