ED Management commentary - ACCA P2

Exposure draft (ED) could be asked in question 4 as a current issue question. Management commentary, also known as Operating and Financial Review (OFR) or Business Review, is an important means used to communicate with capital markets and stakeholders. IASB proposes this ED to recommend a framework for the preparation and presentation of management commentary to accompany financial statements that are prepared under IFRS. It is not mandatory to prepare and publish management commentary, however if an entity would like to prepare one, it should:
1. Not make it available without the financial statements.
2. Clearly distinguish management commentary from other information in the same financial report.

The ED states that the purpose of management commentary is to provide existing and potential capital providers with information that helps them in making decision. A decision-useful management commentary:
1. Discusses and analyses the entity's performance, position and development through the eyes of management.
2. Provides additional explanations of amounts presented in the financial statements and including information that is not presented in financial statements.
3. communicates the direction the entity is taking, include forward-looking information.

IASB proposes that management commentary should contain the following information:
1. The nature of the business.
2. Management's objectives, and strategies for meeting those objectives.
3. Entity's most significant resources, risks and those relationships that might impact the entity's performance and value.
4. Results of operations and prospects.
5. Critical performance measures and indicators that management uses to evaluate the entity's performance against stated objectives.
There should be a mixture of narrative and numerical disclosures.

In conclusion, management commentary should supplement and complement financial statements, including orientation to the future, and fairly present the views of management on the relationship between the financial statements and the company's strategies and objectives.