Highlights
Some companies present a management commentary – known as MD&A in some countries – to accompany their financial statements.
In response to investor concerns, the International Accounting Standards Board revised IFRS Practice Statement 1Management Commentary. Although it is not mandatory, and local regulation may set specific management commentary requirements, it may help companies to tell a connected story.
Focus on telling a coherent story
The revised practice statement provides a comprehensive set of requirements and guidance, with focus on telling a coherent story of a company’s past, present and future.
Management commentaries prepared under the practice statement are expected to:
- enhance investors’ understanding of the financial statements; and
- provide management’s insight into factors, including those sustainability-related, that:
- have affected the company’s financial performance and financial position reported in its financial statements; and
- could affect the company’s ability to create value and generate cash flows in the future.
Key areas in management commentary
The practice statement requires information to be provided on matters that are fundamental to the company’s prospects. This may include sustainability-related matters. It covers six content areas.
A company provides material information that explains how it manages its business. It may need to include KPIs. For example, a social media business might need to report on its subscriber numbers.
Interaction with sustainability reporting
Sustainability-related factors are addressed in management commentary alongside other factors that are fundamental to the company’s prospects.
The practice statement does not require a company to prepare sustainability-related disclosures or present these in management commentary but it is designed to work alongside IFRS® Sustainability Disclosure Standards.
If a company also prepares sustainability-related financial disclosures, then these may be included or referred to in its management commentary. For example, a company might refer to information about a sustainability-related risk when describing an aspect of its strategy to enter a new market.
The information provided in a management commentary may offer a complementary perspective to sustainability-related financial disclosures.
Next steps
Consider the guidance in the practice statement when preparing your management commentary. Monitor your local regulatory developments, as national regulators may use the practice statement in updating or developing jurisdictional requirements.
Speak to your usual KPMG contact and visit kpmg.com/ifrs to keep up to date with the latest news and discussion on this topic.
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