Chartered Institute of Management Accountants,
26 Chapter Street,
London,
SW1P 4NP
Tel: 020 7663 5441
Fax: 020 8849 2468
www.cimaglobal.com
Sir David Tweedie
Chairman, International Accounting Standards Board
30 Cannon Street
LONDON EC4M 6XH
1 March 2010
Dear Sir David
Management Commentary Exposure Draft
The Chartered Institute of Management Accountants (CIMA) is pleased to have the
opportunity to comment on this consultation. CIMA, founded in 1919, is the world’s leading
and largest professional body of Management Accountants, with 172,000 members and
students operating at the heart of business in 165 countries. CIMA is committed to high
quality, global, principle-based, neutral financial reporting standards and supports the
widespread adoption of International Financial Reporting Standards.
CIMA acknowledge that it is a positive step to propose the issue of such guidance, but our
view remains that the IASB should have produced a management commentary standard.
We believe a standard is necessary to achieve the required improvements in reporting and
disclosure, and that the Board’s strategy to issue guidance (to cater for jurisdictional
differences) was not the only option.
We attach responses to your specific questions and would be pleased to discuss with you
any aspect of this letter that you may wish to raise with us.
Yours sincerely
Nick Topazio
Charles Batchelor
Nick Topazio
Charles Batchelor
Business & Financial Reporting Specialist,
Financial Reporting Development Group
CIMA
London
Chairman of Financial Reporting Development
Group
CIMA
London
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Responses to the specific consultation questions :
Q1
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?
No. CIMA believe a standard is necessary to encourage the developments in narrative
reporting, which are in the interests of investors, organisations and the capital markets
as a whole; and ensures that all organisations following a standard are applying
consistent requirements
The Board advises that it chose to issue guidance rather than a standard to enable
jurisdictions to make their own judgements on whether entities should be required to
include a management commentary in their financial reports to assert compliance with
IFRS financial statements; and to make their own judgements about the level of
assurance to which management commentary should be subject.
But such arguments don’t prevent the issue of a standard. A standard could be
framed to apply only to certain types of entity (for example, as IAS 14 was). Or a
standard could be recommended, but with the option for jurisdictions to apply it. We
don’t believe that entities themselves should have the option whether to prepare a
management commentary, but it is foreseeable that regulators might specify which
sizes or types of entity are required to do so.
In the long term, we believe that the positive impact of management commentaries (on
the availability of capital) will encourage regulators to progressively extend the
categories which are required to produce a management commentary. We do not
believe that entities themselves should have the option whether to prepare a
management commentary – they should, if they are the relevant size or type of
organisation specified by the appropriate regulator, be required to prepare such a
useful component of the reporting package.
Q2
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?
CIMA agree with the essential content elements specified in paragraphs 24-39. As
mentioned in our response to the 2005 management commentary discussion paper, it
would be useful to indicate in the supporting text that it would be an exceptional
management commentary which omitted disclosures in any of these categories.
We endorse the IASB’s reminder in this guidance, that these items are not to be taken
in isolation or considered as headings; that preparers should avoid duplication of
material disclosed elsewhere in the financial report and that they should avoid generic
disclosures not relevant to the particular circumstances of the entity.
Q3
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?
Including detailed guidance runs the risk that less experienced preparers, including
those from jurisdictions where such narrative elements have a more recent history,
may be tempted to use the guidance as a template for their own disclosures. This
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would increase the risk of boilerplate statements, or the inclusion of elements which
are not relevant for a particular entity’s circumstances. The overriding objective for the
management commentary is that it should comprise “decision-useful” information. The
most useful role the guidance can play (as it does) is to highlight the important
characteristics of the information being disclosed in the management commentary relevance, faithful representation and materiality.
Experience from the UK showed that over the period when the OFR (Operating and
Financial Review) was voluntary, there was a significant increase in the length of
narrative disclosures. Some entities had considered the OFR as a marketing or public
relations opportunity, and had been tempted to include positive, but non-material
information. As we mentioned in our response to the 2005 discussion paper, including
too much information is not just a benign annoyance, but is actively damaging as it
obscures what the directors have highlighted as the key trends and factors affecting
the business. Therefore if any specific guidance was to be included in the IASB
guidance, it should stress the importance of materiality and how to focus the
management commentary on only those key or significant factors.
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