IASB proposes to overhaul MD&A commentaries

The International Accounting Standards Board proposed a new comprehensive framework Thursday for management discussion and analysis to better align with investor needs.

The IASB issued an exposure draft for revamping the management commentary, typically known in the U.S. as the MD&A section that often accompanies quarterly financial statements and annual reports.

The proposed framework for International Financial Reporting Standards would be a major overhaul of IFRS Practice Statement 1, Management Commentary, allowing companies to bring together in one place information for investors to assess a company’s long-term prospects, including information about a company’s intangible resources and relationships and about sustainability matters that affect the company.

The goal is for the management commentary to explain not only a company’s financial statements but also give investors insights into factors that impact a company’s ability to create value and generate cash flows, including in the long term. The commentary would be based on information used to manage the business, including both financial and nonfinancial metrics used to monitor performance. The MD&A is often written with the company’s investors and creditors in mind. Management commentary can also be handy for other constituencies, including employees, government agencies and members of the public, but it’s often not written with the information needs of those parties in mind.

“The proposed new framework provides a robust basis for bringing together in a single report financial, sustainability and other information about the matters that are fundamental to a company's long-term prospects,” said IASB chair Hans Hoogervorst in a statement.

Photo from IFRS Foundation

The IASB has filmed a video with Hoogervorst explaining the proposed framework.

The proposed framework includes disclosure objectives for information about a company’s business model, strategy, resources and relationships, risks, external environment and financial performance and position. They would allow companies to identify and provide information that’s material to investors, and help regulators and auditors assess compliance with the proposed framework.

IFRS standards don’t actually require companies to provide management commentary. The proposed new framework doesn’t change that. However, regulators could require companies to provide management commentary in accordance with the proposed framework or companies could choose to do so. The IASB anticipates companies would be able to apply the proposed framework along with their own national reporting requirements and in conjunction with frameworks that deal with particular topics, such as sustainability matters. The IFRS Foundation trustees who oversee the IASB are currently working on proposals for creating a new International Sustainability Standards Board. “Standards that would be set by the ISSB are one example of requirements that could be used in conjunction with the proposed framework to meet investors’ information needs,” said the IASB.

A snapshot summary of the proposal is available here. The IASB is asking for comments on the exposure draft by Nov. 23, 2021.