The International Accounting Standards Board (IASB) on Wednesday published an IFRS Practice Statement Management Commentary , which the standard setter said is a broad, nonbinding framework for the presentation of narrative reporting to accompany financial statements prepared in accordance with IFRSs.
The Practice Statement is not an IFRS, therefore, an entity does not need to comply with it to comply with IFRSs.
The IASB said in a press release that management commentary fulfils an important role by providing financial statement users with a historical and prospective commentary on the entity’s financial position, financial performance and cash flows.
“(Management commentary) provides management with an opportunity to add context to the published financial information, and to explain their future strategy and objectives,” IASB Chairman Sir David Tweedie said in the press release. “It is also becoming increasingly important in the reporting of nonfinancial metrics such as sustainability and environmental reporting.”
The Statement says the purpose of management commentary is to provide context for the related financial statements; complement and supplement the financial statements by communicating integrated information about the entity’s resources and the claims against the entity and its resources, and the transactions and other events that change them; and to explain the main trends and factors that are likely to affect the entity’s future performance, position and progress.
The Practice Statement permits entities to adapt the information provided to particular circumstances of their business, including the legal and economic circumstances of individual jurisdictions. The IASB said this flexible approach will generate more meaningful disclosure about the most important resources, risks and relationships that can affect an entity’s value, and how they are managed.
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