Posted by Peter Kajüter, Joanna Krasodomska and Riccardo Stacchezzini, on behalf of the EAA Stakeholder Reporting Committee
In May 2021, the IASB published the Exposure Draft (ED/2021/6) Management Commentary for open consultation. The EAA Stakeholder Reporting Committee (“the SRC”) provided feedback in two ways. First, the SRC participated in a joint IASB-EAA-EFRAG Workshop in June 2021 to discuss the proposed revision of the IFRS Practice Statement 1 Management Commentary within academia. Peter Kajüter represented the SRC on the panel and provided initial feedback on the proposals. Second, the SRC submitted a Comment Letter in November 2021 answering the questions raised by the IASB and addressing additional critical issues. The letter is attached to this blog.
As a basis for preparing the Comment Letter, we conducted an extensive literature review on the current IFRS Practice Statement 1 Management Commentary issued in 2010 (“PS1 MC (2010)”). The review revealed that, despite the large body of research on narrative reporting in general, the PS1 MC (2010) itself gained little attention in academic research to date. There is a lack of empirical evidence on the adoption of the PS1 MC (2010) in a particular country or even across countries. As companies hardly explicitly refer to the PS1 MC (2010), it is hard to identify the direct influence of this document on corporate reporting practice. Thus, evidence on the adoption rate of the PS1 MC on both the country and the firm level is anecdotal. For a detailed summary of extant literature see our Comment Letter.
The SRC believes that the Management Commentary is an important reporting instrument to report on both financial and nonfinancial performance. In view of the dynamic changes in corporate reporting in the past decade, the ED/2021/6 is a good step forward. It considers recent developments in narrative reporting, in particular in sustainability reporting (including intangibles), provides more detailed requirements and guidance for preparers, is open for additional local reporting requirements and considers potential assurance for management commentary.
Nevertheless, the SRC is not convinced by the IASB’s arguments to issue a revised Practice Statement instead of an IFRS Standard. We encourage the IASB to reconsider its decision in this respect. Moreover, we express additional concerns and elaborate on further details in our responses to the questions raised in the ED/2021/6.
The IASB will discuss the feedback to the ED/2021/6 at its next meeting on March 24th. A summary of the feedback provided by 82 comment letters is available on the IFRS website. It will be interesting to see how the project evolves in light of the future work of the ISSB and the desired collaboration between the IASB and the ISSB.
https://www.ifrs.org/news-and-events/calendar/2022/march/international-a…
