IASB Publishes Paper on Management Commentary

The International Accounting Standards Board has published a discussion paper that assesses the role the IASB could play in improving the quality of the management commentary that accompanies financial statements.

The paper was prepared for the IASB by staff of its partner standard-setters from New Zealand, Germany, the United Kingdom and the Canadian Institute of Chartered Accountants.

“Management commentary is widely regarded as an important part of companies' annual reports and many jurisdictions have developed requirements or principles on management commentary,” said IASB Chairman Sir David Tweedie. “The paper reviews those requirements and offers recommendations on how the IASB might promote the wider adoption of best practice in the interests of investors and others who use financial reports. The management commentary accompanying financial statements gives readers a valuable insight into management’s view of the main trends and factors underlying the current and future development, performance and position of the entity's business.”

Four preliminary views are covered in the paper and are open to comment until April 28, 2006:

– An entity's financial report should be viewed as a package comprising the primary financial statements, accompanying notes and management commentary (MC) and that the quality of MC was likely to be enhanced if the Board published requirements relating to MC.

– The objective of MC is to provide information to help investors: to interpret and assess the related financial statements in the context of the environment in which the entity operates; to assess what management views as the most important issues facing the entity and how it intends to manage those issues; and to assess the strategies adopted by the entity and the likelihood. The primary focus of MC is to meet the information requirements of investors.

– It is not appropriate to specify the precise information that must be disclosed within MC, or how it is presented. Rather, any requirements for MC should set out the principles and qualitative characteristics, as well as the essential areas of MC, necessary to make the information useful to investors. It is up to management to decide what information is necessary to meet these requirements, and how the information is presented. It is appropriate to consider ways to limit the amount of information that management discloses, to help ensure that only relevant information is presented to investors.

– It would be helpful to establish criteria to guide the Board in determining whether information it requires entities to disclose within financial reports should be placed in MC, or in the general purpose financial statements. The Discussion Paper suggests placement criteria.

The IASB has yet to develop tentative views on the authors' recommendations. However, it has agreed that if it adds this project to its agenda it will regard the paper as the first stage in its due process. In that case, the IASB could publish an exposure draft as the next phase of such a project. The IASB invites comments on the Discussion Paper by 28 April 2006.

The primary means of publishing discussion papers is by electronic format through the IASB's subscriber Web site. The paper is Management Commentary (ISBN 1-904230-97-0) and is available for purchase at

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