The IASB plans to issue a proposal in April to revise the management commentary practice statement, a guide for how to write the front of an annual report under international financial reporting standards (IFRS).
The work will revise IFRS Practice Statement 1, Management Commentary (Practice Statement), to require companies to provide an explanation about intangibles and sustainability matters, a change from current requirements, IASB Chair Hans Hoogervorst said at the February 23, 2021, IFRS Advisory Council meeting.
The narrative report provides investors with a better picture of the full financial health of a company.
“When we started [the project] we know that intangibles were increasingly important. We don’t have the expectation that in the future they will be massively recognized and measured and put in the financial statements, so we need more attention to these things in the narrative,” Hoogervorst said.
“We saw the same around sustainability. We noted that our existing management commentary practice statement did not pay any attention to these matters,” he said. “So there was a general need for us to upgrade it to create a sort of docking station for a narrative to improve all sorts of information that might be very relevant for investors to better gauge what are the value drivers of a company that we know is not included in the financial statements at this point.”
The proposal comes at a time when the board’s trustee organization, IFRS Foundation, is working on establishing the Sustainability Standards Board (SSB), a body that would initially develop climate-related accounting standards for IFRS users.
Asked by Council member Martin Schloemer how the IASB’s work to include sustainability matters in management’s commentary would fit with the trustee’s establishment of a sustainability board and that new board’s work, Hoogervorst said the information could be leveraged by the new board and could also complement what it develops.
The IASB on February 16 held what was expected to be its last meeting on the proposal, studying miscellaneous issues staff members ran into in drafting an exposure document for the public’s comment.
The board by 7 to 5 decided the Practice Statement should state that “information is material if omitting it from management commentary, or misstating or obscuring it within management commentary, could reasonably be expected to influence decisions that investors and creditors make on the basis of that management commentary and the related financial statements.” One member was absent.
This article originally appeared in the February 24, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.
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