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Management commentary

Date recorded:

Status of the Practice Statements and procedures for issuing management commentary (Agenda Paper 15)

In this paper, the staff and Board discussed the status of the Practice Statement, and the procedures for issuing management commentary.

Staff recommendations

Recommendation 1

Staff analysed whether the Practice Statement should become mandatory or remain a non-binding framework for the preparation of management commentary.

During meetings with the Management Commentary Consultative Group (MCCG), some members expressed a preference for the Practice Statement to become mandatory, at least as a long-term aspiration if not feasible in the short term. However, overall the staff recommended that the revised Practice Statement remain a non-binding framework for the preparation of management commentary.

Discussion and voting

Overall, the Board agreed with the staff recommendation to not mandate the Practice Statement at this moment in time.

There were comments from Board members expressing a desire that this should be mandated in the future and stating that this should be an ambition for the Practice Statement.

When asked to vote on the staff recommendation, the Board voted in favour with 11:3 votes.

Recommendation 2

There is currently no requirement for a statement of compliance with the existing Practice Statement. However, an entity can assert that its management commentary complies with the Practice Statement only if it complies with the Practice Statement in its entirety.

The staff had discussed with the MCCG whether the revised Practice Statement should require a statement of compliance if and only if the Practice Statement has been complied with in its entirety. The MCCG had mixed opinions on whether an entity should be required to state compliance when it has complied with all aspects of the Practice Statement.

The staff concluded that it would be useful for stakeholders to know whether management commentary complies with the requirements in the Practice Statement. The staff recommended that the revised Practice Statement should require management commentary to include an unqualified statement of compliance with the Practice Statement if it complies with all the requirements in the Practice Statement (Recommendation 2a) or explain which requirements it does not comply with if it does not comply (Recommendation 2b).

Discussion and voting

There were mixed views and an extensive discussion from the Board with regards to the staff recommendations.

Some Board members were reluctant to permit a statement of partial compliance as it was seen to be at odds with the philosophy of having IFRS as a complete set of standards, rather than an adaptable model; others felt that the concepts of ‘compliance’ and ‘requirements’ with respect to a non-mandatory Practice Statement were incompatible.

There were further concerns over the various levels of partial compliance, and whether the idea of ‘compliance’ would be meaningful if extensive requirements were not complied with, but ‘partial compliance’ was disclosed.

The members were asked to vote on Recommendation 2a and 2b separately.

When asked to vote on 2a (i.e. that the Practice Statement should require management commentary to include an unqualified statement of compliance with the Practice Statement if it complies with all the requirements in the Practice Statement), the Board voted in favour with 9:3 votes (there was one absentee).

When asked to vote on 2b (i.e. that the Practice Statement should require management commentary to explain which requirements it does not comply with if it does not comply with all the requirements in the Practice Statement) only five members of the Board voted in favour (there was one absentee). This was an insufficient number of votes to support Recommendation 2b.

The Board was then asked to vote on allowing, but not requiring, management commentary to make a statement of partial compliance without requiring explanation. The Board voted in favour with 7:5 votes (there was one absentee).

Recommendation 3

The existing Practice Statement states that when management commentary relates to financial statements, an entity should either make the financial statements available with the management commentary or identify in the management commentary the financial statements to which it relates. It also requires an entity to clearly identify its management commentary and distinguish it from other information.

The staff recommended that the revised Practice Statement should continue to have these requirements.

Discussion and voting

The Board members were broadly in favour with these recommendations. There was one question regarding how management commentary would be distinguished from other information in other reports if an entity were to issue numerous other reports. The staff clarified that this recommendation is a mechanism for clearly and separately distinguishing management commentary from any other information that may be presented.

There was a further observation that it should be made clear that ‘management commentary’ refers specifically to management commentary per the Practice Statement, rather than a general term for any narrative reporting.

When asked to vote, the Board voted in favour with 12 votes (there was one absentee).

Recommendation 4

The existing Practice Statement does not have a requirement for an entity to provide the authorisation date of its management commentary.

The staff discussed with the MCCG whether the revised Practice Statement should require management commentary to state the date of its authorisation. The members of the group overall supported the idea that management commentary should include the date of its authorisation so that the cut-off date is clear to users.

The staff recommended that the revised Practice Statement should require an entity to specify the date when its management commentary is authorised for issue and to reflect any material information about events occurring after the end of the reporting period and before the date when the management commentary was authorised for issue.

Discussion and voting

The Board members largely agreed with the staff recommendations. There was one concern that including information about events occurring after the end of the reporting period and before the date when the management commentary was authorised for issue could lead to inconsistencies in management commentary and the information in the financial statements, and as such these should be highlighted and disclosed clearly.

When asked to vote, the Board voted in favour with 12 votes (there was one absentee).

Recommendation 5

The existing Practice Statement does not have any requirement for an entity to identify the individual(s) or the body(s) that authorised the management commentary for issue.

The staff discussed with the MCCG whether the revised Practice Statement should require management commentary to identify the individual(s) or the body(s) that authorised the management commentary for issue. The members of the group overall supported the idea, some members further recommending that management commentary should be authorised by the same individual(s) or body(s) that authorised the issue of related financial statements.

The staff also discussed whether the revised Practice Statement should require a statement of responsibility for the management commentary, a description of the integrity or governance of the process applied in preparing the management commentary, or a conclusion that the management commentary meets particular objectives. Feedback from the group on these additional matters was largely negative.

The staff recommended only that the revised Practice Statement should require identification of the individual(s) or the body(s) who authorised the management commentary for issue.

Discussion and voting

The Board largely agreed with the staff recommendations. There was no further discussion and, when asked to vote, the Board voted in favour with 12 votes (there was one absentee).

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