Management commentary

Date recorded:

Feedback summary—Overview (Agenda Paper 15)

In May 2021, the IASB published ED/2021/6 Management Commentary. The comment period for the ED ended in November 2021. In this paper, the staff summarised the feedback on the proposals in the ED for a revised Practice Statement (PS) on Management Commentary.

No decisions were asked from the IASB on the agenda papers.

Feedback summary—Project direction (Agenda Paper 15A)

In this paper, the staff summarised the feedback received on the direction and purpose of the Management Commentary project. The staff noted that:

  • Many respondents, including almost all investors, support the project
  • Many respondents highlighted the importance of management commentary in corporate reporting and the need for guidance in this area to remain current
  • Some respondents highlighted that the proposals reflect investors information needs, provide well-structured preparation guidance, could help improve connectivity between ‘financial’ and ‘non-financial’ information, and build on the recent developments in narrative reporting, such as the Integrated Reporting (IR) Framework, and the Recommendations of the Task Force on Climate Related Financial Disclosures (TCFD recommendations)
  • A few respondents disagreed with the focus on investor needs, and instead argued that providing a PS in this area would be outside the remit of the IASB, preferring to use the IIRC’s IR Framework as the basis for such reporting

Interaction with sustainability reporting

The ED was published prior to the creation of the ISSB. Respondents were asked to comment on any sustainability reporting matters that the IASB should considered in the PS.

Most respondents acknowledged the interaction between the Management Commentary project and the work of the ISSB, with:

  • Many respondents focusing on the need for the IASB and ISSB to work together on Management Commentary. Many of these suggested that the project should become a joint project of the IASB and ISSB
  • Many respondents suggesting the project should be paused until the ISSB is established and fully operational, there is more clarity on the scope and remit of future ISSB Standards, and the relationship between the ISSB and IASB is formalised. Some respondents disagreed with pausing the project, however, arguing there are other aspects of management commentary outside of sustainability reporting that need improvement
  • Many respondents highlighting specific areas of interaction and potential overlap of the future work of the IASB and the Management Commentary project

The purpose and status envisaged for the final document

Some respondents commented on the purpose and status of the final document, with:

  • Some of these respondents suggesting that the status of a non-mandatory practice statement be maintained
  • A few respondents suggesting that the non-mandatory status is maintained, but the final document is issued as a framework on management commentary, rather than a PS
  • Some respondents suggesting that the IASB explore the possibility of issuing the final document as a standard
  • Many respondents, in light of the establishment of the ISSB, suggesting that the proposals in the ED should be used to develop a broader framework for ‘connected reporting’ which bridges between information in the financial statements, and sustainability-related financial disclosures

IASB discussion

IASB members welcomed the breadth of support for the project, noting that, although good practice exists with respect to management commentary, they hope to raise the overall bar of quality of reporting.

Many IASB members noted the consistent thread of feedback regarding the overlap of the IASB and the new International Sustainability Standards Board (ISSB), and whether the project should be paused so that the scope of each can be better determined.

Views among IASB members were mixed, with some thinking that stock should be taken, observing that it would be considered strange if the role of the ISSB was not at least acknowledged by the project; others noted and agreed with feedback that improvements in disclosure in management commentary are needed in areas other sustainability-related reporting.

Most IASB members expressed a view that the IASB should remain agnostic with respect to the location of management commentary, observing that there are conflicting requirements in the law across different jurisdictions in any case, though it was suggested that the staff could do further research to map out these differences. Others noted that deciding on the location of management commentary without determining the content may be inappropriate.

Feedback summary—Investor feedback (Agenda Paper 15B)

In this paper, the staff summarised the feedback received from investors on the ED.

Need for the project

Almost all investors commented on the importance of management commentary as a communication channel. Almost all commented on the shortcomings in current practice, agreeing with the IASB’s analysis, with some observing that they do not rely greatly on management commentary as it is inadequate. All investors who commented welcomed the project.

Objective of management commentary

Almost all investors agreed with the proposed objectives in the ED.

Objectives-based approach and design of disclosure objectives

Almost all investors agreed with this approach, being supportive of giving management the flexibility to determine what information to include in management commentary and how to effectively communicate that information.

However, a few investors raised concerns that, while the flexibility would allow ‘best practice’ entities to tailor their management commentary to meet investor needs, it could also allow other entities to avoid disclosing material information.

Disclosure objectives for areas of content

Almost all investors responded and agreed that these areas correctly identify the information that investors need, but some suggested that greater prominence should be given to information about funding and capital allocation strategies, the entity’s competitive environment, progress in managing key matters—including failures and setbacks, and metrics.

Key matters and material information

Most investors who commented supported these proposals, with some highlighting that the IASB should ensure that the definitions of material should be aligned with that in any future ISSB Standards.


Almost all investors who commented on these proposals supported these proposals. Many investors who commented emphasised the important role of metrics in focusing management commentary. All investors who commented on the approach of not specifying a required list of metrics to use agreed with this proposal.

Long-term prospects, intangible resources and relationships, and ESG matters

The ED included examples of how the proposed requirements and guidance could be applied to matters that affect an entity’s long-term prospects, intangible resources and relationships, and ESG matters, but did not propose comprehensive requirements for reporting on an entity’s governance.

Most investors who commented felt that the proposed guidance would help preparers identify appropriate information, but some raised concerns that the flexibility of the guidance may lead to omission of material information.

Other topics

The paper also sets out investor feedback on other proposals in the exposure draft, including:

  • Attributes of information in management commentary
  • Including information in management commentary by cross-reference
  • Statement of compliance
  • Effects analysis
  • Effective date

IASB discussion

IASB members generally welcomed the strong support from investors. Members felt the needs of investors came through clearly and it was noted that the support for the project from investors was generally consistent with feedback from other stakeholder groups.

Some members noted that the nature of the feedback indicates that there may be broader behavioural problems with regard to the preparation of management commentary, which leads to the variability in quality of reporting. This may need to be considered in any future discussion around the status of the final document.

Feedback summary—Objective of management commentary (Agenda Paper 15C)

In this paper, the staff summarised the feedback received on the proposed objective of management commentary and related concepts.

Objective of management commentary

Most respondents supported the proposed objective of management commentary.

Some respondents who were broadly supportive of the proposals also suggested some improvements, such as capturing the need for information on matters not directly linked to the entity’s prospects for future cash flows and explaining the role of management commentary in the integration of sustainability related information. Some respondents also noted that the proposed objective made no explicit reference to management’s stewardship of the entity’s resources.

Some respondents disagreed with the proposed objective, feeling that it did not address the information needs of a broader range of stakeholders, or take a broad-enough view of the concept of value creation.

Focus on investor information needs

Most respondents supported the proposed focus on investor needs. However, some respondents felt that management commentary should address the information needs of a broader range of stakeholders.

Value creation and future cash flows

Most respondents agreed with the proposed concept of value creation in the ED. However, some respondents argued for a broader view of the concept of value creation.

Long-term time horizon

Almost all respondents supported the proposed reference to the ability to create value and generate cash flows in the long-term time horizon. However, some respondents disagreed with the emphasis on factors that could affect an entity’s ability to create value and generate cash flows in the long term because such factors can be misleading due to the constantly changing business environment of the entity.

Other respondents also noted potential personal liability risk of directors from making forward-looking statements.

Some respondents suggest that management should be required to define short, medium, and long term in their management commentary.

Management’s perspective

Some respondents felt that the ED should emphasise further the importance of disclosing management’s perspective within management commentary.

IASB discussion

IASB members welcomed the broad support for the proposed objectives.

In response to some feedback that there is undue focus on investors’ needs, some members noted the importance of remaining focused in what the Practice Statement should include in its scope.

Others recognised the feedback on the potential to broaden the definition of terms such as ‘value creation’ but noted that the intended meaning of value creation already brings in scope, for example, the value an entity creates for others, as that in turn impacts their reputation and subsequent value creation.

Others reiterated the need to find balance between the amount and nature of forward-looking information to be required and the potential opening to litigation from stakeholders, but in a way that does not allow broader relief from disclosure due to ‘commercial sensitivity’.

Feedback summary—Objectives-based approach (Agenda Paper 15D)

In this paper, the staff summarised feedback received on the proposed objectives-based approach in the ED.

Objectives-based approach

Most respondents supported the proposed objectives-based approach, thinking that it would provide a suitable and sufficient basis for management to identify the information that investors need. Many respondents who supporting this approach felt it could result in more entity-specific information than under a prescriptive-approach.

However, some respondents expressed concerns about this approach, including that management may find it difficult to identify the information needed to meet the disclosure objectives, and that information provided on the basis of disclosure objectives alone may not be as comparable as information provided to meet prescriptive requirements.

Suitability and sufficiency of the approach as a basis for assurance and enforcement

Respondents’ views were mixed with regard to the whether the approach provides an adequate basis for assurance and enforcement. Some felt that, due to the extensive illustrative examples and structured requirements in the ED, and the fact that much of the information is verifiable, there is an adequate basis for assurance and enforcement; others felt that, for instance, determining the quantity and type of information requirement to meet the objectives requires significant judgement, the exercise of which would be very challenging and time consuming for auditors and regulators.

Respondents also had mixed views on whether and the extent to which the IASB should be aiming for requirements that provide an adequate basis for assurance and enforcement.

Steps the IASB could take to enhance the proposed objective-based approach

Some respondents suggested steps the IASB could take to enhance the effectiveness of the proposed approach, such as specifying a baseline requirement of information that must be disclosed if material, working with the International Auditing and Assurance Standards Board (IAASB) and other stakeholders to make the PS ‘assurance ready’, and preparing more guidance and educational material to assist preparers in applying the objectives-based approach.

IASB discussion

The IASB discussed Agenda Papers 15D and 15E at the same time. Their comments for both are noted under 15E.

Feedback summary—Disclosure objectives and areas of content (Agenda Paper 15E)

In this paper, the staff summarised the feedback received on the six areas of content for which disclosure objectives were proposed and the disclosure objectives proposed for those areas of content.

Design of the disclosure objectives

Many respondents, in particular investors, supported the design of the disclosure objectives, referring specifically to the three-tier structure, the inclusion of assessment objectives, or both.

However, some respondents, in particular preparers, expressed concerns the design may be complex and burdensome to prepare, and may result in an increase of the volume and complexity of information disclosed, which may reduce its usefulness.

Areas of content and disclosure objectives for those areas of content

Most respondents gave broad support for the proposed areas of content and the disclosure objectives proposed for those areas of content. Investors in particular noted that the proposed objectives correctly identify the information needs of investors.

Some respondents suggested enhancements, such as adding requirements to provide governance information in management commentary or broadening the ‘risks’ area to include both risks and opportunities.

Disclosure of commercially sensitive information

The proposals in the ED make no exception from disclosing commercially sensitive information. However, some investors, while expressing overall support for the proposed objective-based approach, expressed concern that the flexibility of the approach could allow management to avoid disclosing material unfavourable or entity-specific information by claiming the information is commercially sensitive or confidential regardless of whether there is an explicit exception.

Some respondents also noted that not including an exception for commercially sensitive information may result in qualified statements of compliance with the PS becoming commonplace.

Other respondents suggested adding an exception for commercially sensitive information, pointing to, for instance, the availability in IAS 37 to omit information where disclosure would seriously prejudice the entity.

IASB discussion

The IASB discussed Agenda Papers 15D and 15E at the same time.

IASB members welcomed the broadly positive feedback to the suggest objectives-based approach, though it was noted that there was more support than in the feedback on ED/2021/3 Disclosure Requirements in IFRS Standards—A Pilot Approach, which also proposes to incorporate an objectives-based approach to disclosure requirements: some members therefore noted it was important to understand these differing levels of supports.

Some members expressed concern at the feedback which suggested some preparers may not be able to identify the information needs of users. Others noted that it may be useful to understand whether this comes from an assumption that preparers will be taking on liability by tacitly asserting they have identified all the users’ information needs.

Members also commented on feedback which indicated some respondents felt the three-tier approach would be too complex to implement in practice, noting that this may result in poor quality disclosures and that the IASB should carefully consider how to support good practice if it continues with the three-tier approach.

It was also observed that there were concerns over the lack of comparability; some IASB members noted in response to this that, though some comparability should be expected in some areas, management commentary should be a place for entity-specific information to be provided to users.

Some IASB members continued to express concerns regarding the potentially prejudicial disclosures required by the Practice Statement, observing that some of the respondents’ feedback in this area was justifiable.

Feedback summary—Key matters and material information (Agenda Paper 15F)

In this paper, the staff summarised the feedback received on proposed requirement for management commentary to focus on key matters and provide material information.

Requirements to focus on key matters and provide material information

Most respondents supported the proposed requirement to focus on key matters. However, of these respondents, some suggest that the IASB should clarify the way in which this requirement interacts with other requirements in the ED, such as the requirement to provide material information.

Some respondents also raised concerns around the ability of management to accurately identify the key matters for an entity.

Some respondents suggested that the requirement to focus on key matters be removed completely, arguing that it is unnecessary and overcomplicated the requirements.

Key matter terminology

Some respondents expressed concerns around the terminology ‘key’ and ‘fundamental’ used in the PS. Most of these were concerned regarding the similarity, and potential confusion, with the term ‘key audit matters’ being commonly used in independent auditors’ reports.

These respondents suggested remedies, including a simple change in the label used for ‘key matters’.

Guidance on identifying key matters

Most respondents expressed broad supported for the proposed guidance on identifying key matters.

IASB discussion

IASB members generally agreed that, if respondents are requiring clarification of the meaning or certain terms, then this should be given to aid application of future requirements.

It was also noted that, if each term serves a purpose, they should not be abandoned because of similarity with other terms in common use, in particular, “key matters” vs. “key audit matters”.

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