Comments on IASB's Exposure Draft on the
Management Commentary
IFRS Assignment
Xavier Institute of Management, Bhubaneswar
Submitted By:
Radhika Kantareddy (u108043)
Murali Mohan Tata (u108086)
Shakti P. Mohapatra (u108051)
ANSWERS TO QUESTIONS RAISED IN THE MANAGEMENT COMMENTARY
Question-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?
ANSWER
We as a group believe that the Board’s decision to develop a guidance document for preparation
and presentation of management commentary instead of an IFRS is the correct decision. This nonmandatory guidance augurs well instead of a document which would be binding. This will help in
convergence of thoughts on a global level which in turn will help in the quality of reporting. At
present, there are many practices followed around the world. To develop a detailed standard which
would be consistent with all these existing standards is a difficult task. Hence this non-mandatory
guidance is better.
Question-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?
ANSWER
After going through all the paragraphs 24 to 39, we as a group made a gist of what all is given in the
paragraphs. We note the gist hereunder:Paragraphs 24 to 39 Summary of the points
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Nature of business, resources and risks to be described clearly.
Content elements should not be presented in isolation
Description of bus helps users gain an understanding of the business and external
environment.
Competitive position, products, services,business processes and distribution methods,
structure and economic model.
Priorities for action and resources to be managed.
Relationship between objectives, strategy, management actions and executive remuneration
Clear description of most important resources – risk and relationships that affect the entity’s
long term value and how these are managed.
Set out critical financial and non financial resources available and how they are used.
Analyse the adequacy of capital structure – liquidity, cash flows, surplus.
Principal risks identification – strategy for mitigating risks, and effectiveness of strategies.
Relationship with stake holders – their effect on performance and value of entity.
Distribution of customers.
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Description of financial and non financial performance and the extent to which it is
indicative of future value. (Depends on management assessment.)
Performance, position - beginning of the period - end of the period, significant changes in
financial indicators – understand extent to which past performance may be indicative of
future performance
Analysis of prospects helps users understand management’s strategies for long term.
Management to explain assumptions, risks and likelihood of achieving targets.
Declaration of performance measures – Quantitative
Indicators accepted and used widely.
Indicators relevance to be checked from time to time to incorporate changes in business
scenario or strategy.
Non-IFRS items to be explained clearly or reconciled
From the above summations, it can be seen that the Board wishes to adopt an approach based on
certain principles which it has laid down. Our group is of the view that such a strategy is the correct
one to adopt. All these lay down clearly the requirements which are already present in some
regulations adopted by some countries. As these requirements are based on certain principles, these
would iron out any contradictions and variations which might creep up with the various guidelines
followed across the globe.
Question – 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?
ANSWER
After deliberation within the group, we came out with views which led to having both pros and cons
at the Board’s decision not to include detailed application guidance and illustrative examples in the
final management commentary guidance document. We have enumerated the points discussed in
the group and have given them in a table:Positives
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It gives a framework within with we can apply the scope of illustrations.
It provides approach consistency to similar situations.
Negatives
 They might not be exhaustive.
 They might not be a proper representative sample
 As stated in the document, they might be interpreted as a floor or a ceiling. This might
restrict the scope
 The person who is developing this might not be having an exhaustive knowledge of all
industries. Examples and their treatment might differ from industry to industry.
 This may also bring in bias and subjectivism of the person or body preparing them.