The revised Practice Statement on management commentary was issued this week (23 June), with an aim to improve and align management commentary and narrative reports across the globe. It was developed in response to feedback from investors that highlighted shortcomings in current practice, which IASB aims to address with these revisions.

What is management commentary?

Management commentary – also known as the strategic report, management’s discussion and analysis (MD&A) or operating and financial review – serves two purposes: giving investors a better understanding of an entity’s financial position and performance, and providing management’s views on various factors, including material information about sustainability-related considerations, that could affect the company’s revenue and cashflows in the future.

The management commentary accompanies financial statements and/or non-financial disclosures. It is primarily aimed at existing and potential investors, lenders and other creditors.

However, the IASB’s research into narrative reporting found that for investors, management commentary was lacking in the details they needed. Feedback included: “There is lack of focus on matters that are important to a company’s prospects, especially in the long term.”

Others bemoaned the lack of company-specific information, or information that was too fragmented to reconcile to the financial statements. “Information is unbalanced, incomplete or difficult to compare over time or between companies with similar activities.”

What’s changed?

The IASB used that feedback to revise the Practice Statement with a focus on investors’ specific information needs. It has also modernised it by building on various innovations in narrative reporting, such as the Integrated Reporting Framework. It sought advice from a Management Commentary Consultative Group and the International Sustainability Standards Board (ISSB) in the development of the revisions. The revised Practice Statement is not an Accounting Standard; it may be mandated in certain jurisdictions, while for other businesses and territories it may be voluntary.

Flexibility has been built into the revisions; it can be applied by companies whether they apply IFRS Accounting Standards or IFRS Sustainability Disclosure Standards, and alongside any local or industry-specific requirements. 

The revisions also set out clear disclosure objectives for management commentary, covering: 

• material information; 
• focus on key matters; 
• metrics; 
• attributes of useful information; and 
• coherence.

It does not specify any detailed requirements on topics such as environmental, social and governance (ESG) disclosure or other sustainability-related matters. Instead, it states that management commentary should provide material information about any factors necessary to meet the overall objectives set out in the revised Practice Statement. It also illustrates how a company might apply the revised Practice Statement to determine what information classifies as material.

Management commentary is broken down into six content areas in the revised Practice Statement:

Business model: how the company’s business model creates value and generates cash flows.

Strategy: management’s strategy for sustaining and developing the company’s business model.

Resources and relationships: the resources and relationships on which the company’s business model and management’s strategy for sustaining and developing that model depend.

Risks: the risks of events or circumstances that could disrupt either: the company’s business model; management’s strategy for sustaining or developing that model; or the company’s resources or relationships.

External environment: how external factors and trends – such as economic, political, regulatory, technological, social, and environmental developments – have affected or could affect the company.

Financial performance and financial position: management’s perspective on the company’s financial results and condition.

There are specific objectives outlined for the information investors require for each of these areas. For example, investors want to see the scale, nature and range of a company’s operations, and how it creates value and maintains cashflows, under the business model related content. Strategic aims and milestones make up part of the strategic information. 

When it comes to resources and relationships, investors want to understand their nature, how they are obtained, maintained and deployed, and any factors that might affect their availability and quality. Investors want to know what risks the company is exposed to, the extent of that exposure, and how they are mitigating them.

Fahad Asgar, Technical Manager, ICAEW’s Corporate Reporting Faculty, welcomed the revisions, particularly the increased alignment with the ISSB and emphasis on value creation. 

“Management commentary plays a vital role in helping stakeholders understand how a company creates and sustains value,” he said. “As the corporate reporting landscape continues to evolve, we see a valuable opportunity for the IASB’s work to align more closely with the ISSB, supporting a more coherent and integrated reporting framework. We believe the Practice Statement can contribute meaningfully to this vision by enabling users of the accounts to receive clear, relevant, and high-quality insights into a company’s performance, strategy, and long-term value creation.”