International Accounting Standards Board (IASB), the body that sets International Financial Reporting Standards (IFRS), issued a ‘practice statement’ on 08 December 2010 titled ‘Management Commentary’. It is not a standard nor is it binding on business entities that follow IFRS. Non-compliance with the Practice Statement will not mean the entity’s financial statements are not complying with IFRSs, if they otherwise do so.
Whilst for many entities management commentary and analysis has been a key part of the financial reports what this statement does is to provide a uniform basis for corporate narrative reporting particularly with regard to strategies and risks. Basically the statement expects the management to provide its view of the entity’s performance, position and progress to supplement and complement the financial information provided in the financial statements. The commentary should help the users of the financial statements understand (a) the entity’s risk exposures, its strategies for managing risks and the effectiveness of those strategies;(b) how resources that are not presented in the financial statements could affect the entity’s operations; and (c) how non-financial factors have influenced the information presented in the financial statements.
The Practice Statement is applicable from 8 December 2010.
