Comments on IASB's Exposure Draft on
the Management Commentary
International Financial Reporting Standard
Submitted by:
Rahul Agarwal
Anushri Anand
Prayag Mohanty
Rishiraj Singh Shekhawat
U108044
U108069
U108092
U108098
Submitted to:
Prof. D.V. Ramana
XAVIER INSTITUTE OF MANAGEMENT
BHUBANESWAR
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?
Response:
We believe that an IFRS remains more appropriate for the information conveyed through financial
statements. We recognize that management commentary is intended to supplement and to
complement financial statement information, and it is not a substitute to financial statement
information nor should it be restricted to some conventional or static template. Given also that
each entity possesses some uniqueness in respect of its business model, capital structure,
management structure and operating environment, and other specific characteristics and for that
matter each business how so ever related to each other is unique in its own capacity, giving the
management commentary a status of an IFRS will make it too complex.
Importantly, the contents of a management commentary should permit fluidity which will vary
among entities and also across reporting periods. In short, the development of a comprehensive
IFRS to cover all possible contents of a management commentary would be extremely complex,
somewhat subjective, and perhaps not the best use of the IASB’s resources. Proposed guidance can
nevertheless serve to promote the best practices in financial reporting.
Although creating a standard will definitely bring structure but the concern for the complexity
arising out of the IFRS still remain. There is a chance that the whole purpose of making IFRS
principle based rather than it being rule based might be defeated if there is an IFRS for the
Management Commentary.
The purpose of the management commentary as we understand is to establish a context for the
Financial statements and make the user understand the rational of the management behind the
figures reported in the balance sheets and in that process disclose the assumptions and the risk
which it has taken to the users specially the Capital Providers. Because of the unique nature of
business the context shall be unique hence standardizing it won’t be justifiable and might also
result in a biased view. However we also believe that having a guidance document for writing the
Management Commentary will provide the management with guidelines in preparing a lucid and
understandable Commentary.
Some Views against the above Argument:
1. There is a possibility of a personal bias of the management creeping in the commentary and
also the commentary losing its objectivity if it is not made a standard. The user of the
financial statements requires an objective view on the numbers reported in the Financial
Statements and since there is no obligation on the Management to do so then the above
possibility arises.
2. By developing a guidance document it will not be mandatory for the presenters of the financial
statement to adopt the guidance document, but will present a scope of choice for the
presenters either to accompany the Management Commentary with the financial statements or
not.
(A possible solution could be to make it mandatory to accompany the financial statements with
the Management Commentary prepared in accordance with the guidelines provided in the
Guidance Document.)