February 16, 2010
Sir David Tweedie
International Accounting Standards Board
30 Cannon Street
London EC4M 6XH
United Kingdom
Dear Sir David
Management Commentary Exposure Draft
The Canadian Performance Reporting Board of the Canadian Institute of Chartered Accountants
(CICA) commends the International Accounting Standards Board for issuing the Exposure Draft
Management Commentary (MC).
We are pleased to provide comments on the Exposure Draft. These are informed by the enclosed
CICA publication Management’s Discussion and Analysis – Guidance on Preparation and
Disclosure (CICA MD&A Guidance) and findings from periodic reviews of Canadian company
MD&A disclosures1. The comments are presented under two main headings:
A. Responses to Questions in the Exposure Draft
B. Other Comments
A. Responses to Questions in the Exposure Draft
1. Do you agree with the Board’s decision to develop a guidance document for the preparation and
presentation of management commentary instead of an IFRS? If not, why?
We agree with the Board’s decision to develop a guidance document, for the reasons set out in
paragraphs BC8-11 of the Exposure Draft. As a document that expresses management’s views
about matters, it would be unreasonable for MC to be subject to an audit comparable to the audit
of financial statements, a requirement in many jurisdictions if the document were to be positioned
as an IFRS.
To be consistent with the nature of guidance, we think that in paragraph 1 (Objective) the verb
“prescribes” should be replaced by “presents”. Likewise, in paragraph 4 (Scope) we think that the
reference to level of assurance is unnecessary.
1
A copy of our most recent MD&A review Striving for Improvement is enclosed, for information.
2. Do you agree that the content elements described in paragraphs 24—39 are necessary for the preparation
of a decision–useful management commentary? If not, how should those content elements be changed to
provide decision–useful information to users of financial reports?
We consider that in general the content elements described in paragraphs 24-39 include those
necessary for the preparation of a decision useful management commentary. We recommend,
however, that the content elements be amended as follows:
Objectives and strategies (para. 27) – Objectives and strategies should provide more guidance for
disclosures about strategy.
Resources (para. 29) – Resources should provide more guidance regarding disclosures about nonfinancial resources.
Risks (para. 30-31) – Risk and risk management disclosures are important enough to be treated as
a separate content element rather than being included with resources and relationships.
Performance measures and indicators (para. 36) – Performance measures and indicators should
call for disclosures at the level of business segments. As well, this section should offer more
guidance about the nature of the disclosures, including their significance to management in
monitoring strategy and results compared to objectives.
3. Do you agree with the Board’s decision not to include detailed application guidance and illustrative
examples in the final management commentary guidance document? If not, what specific guidance would
you include and why?
We agree with the Board’s decision to exclude illustrative examples. However, we believe that
the proposed MC content elements may be difficult to apply in practice without some additional
explanatory guidance such as that provided in the CICA MD&A Guidance. We believe this would
promote more consistent and useful application of the MC guidance, and help to avoid boiler-plate
disclosures such as laundry lists of all types of risks.
B. Other Comments
1. Para. 20 and Appendix of Defined Terms - We agree that the qualitative characteristics for
financial reporting set out in the Conceptual Framework should apply to MC. However, we
believe it is essential that the application of these characteristics be discussed in the context of
MC’s forward-looking orientation and focus on management’s perspective of events. The Board’s
2005 Discussion Paper addressed this issue at some length, albeit by reference to an earlier version
of the Conceptual Framework. Verifiability, for example, may be readily applicable to the types
of information presented in financial statements, but less so for MC. Also, we recommend
providing an explanation of materiality for the purposes of management commentary and how this
is consistent with the concept of materiality for financial statements.
2. Para. 6 and BC 39 - We agree that management commentary should be accompanied by the
related financial statements, but we also consider that financial statements should be accompanied
by the related management commentary, since the two documents need to be read together as a
whole in order for readers to properly understand the company’s financial performance, condition
and prospects. Canadian securities regulations reflect this same concept (ref. NI 51-102).
3. Para. 17 et seq., including Appendix of Defined Terms - We recommend that the Exposure Draft
be reviewed to address any terms that have specified jurisdictional meanings. For example, we are
concerned that use of the term “forward-looking information” would be problematic in
jurisdictions such as Canada and the USA, where that term is defined by law and regulation and is
the subject of a considerable number of legal cases. The phrase “future-oriented information”
would be acceptable and consistent with the rest of para. 17. As well, we suggest that more
guidance should be provided regarding the conditions or criteria to be taken into consideration
when presenting future-oriented information, such as that provided in section 2.4 of the CICA
MD&A guidance.
4. Para. 9 and BC 15-18 - We believe that some users will place different levels of importance to the
financial statements and management commentary. We believe that the primary users of
management commentary are existing and potential equity investors. They do not have the same
degree of access to information about a company that other capital providers such as lenders and
creditors may demand. Further, we note that a very high proportion of respondents to the
Discussion Paper (over 70%) agreed with the investor focus.
We hope these comments will be useful in finalizing the guidance. Should you wish to discuss any
of them in greater detail, please contact Chris Hicks, CA at chris.hicks@cica.ca
Yours truly,
F. Pynn, CA
Chair, Canadian Performance Reporting Board
Encs.