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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 discuss 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 recommend that the revised Practice Statement remain a non-binding framework for the preparation of management commentary.

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 recommend 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 or explain which requirements it does not comply with if it does not comply.

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 recommend that the revised Practice Statement should continue to have these requirements.

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 recommend 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.

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

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