Management commentary is a general-purpose financial report that accompanies financial statements prepared in accordance with IFRS Accounting Standards or on another basis and might accompany or include sustainability-related financial disclosures. It plays an essential role in investors’ assessments of an entity’s prospects.

Purpose of the revised Practice Statement

The revised Practice Statement focuses on investors’ information needs and targets shortcomings in practice.

The revised Practice Statement does not specify which entities are required to prepare management commentary, how frequently entities should do so, who should authorise management commentary for issue or the level of external assurance to which management commentary should be subjected. The revised Practice Statement is meant to provide a global benchmark for regulators to use in updating or developing national requirements and guidance on management commentary and a comprehensive resource for entities in providing information that meets investors’ needs.

Interaction with other reporting requirements or guidelines

The revised Practice Statement is not an IFRS Accounting Standard or an IFRS Sustainability Disclosure Standard. Financial statements can comply with IFRS Accounting Standards even if they are not accompanied by a management commentary or if they are accompanied by a management commentary that does not comply with the revised Practice Statement.

Overview of the revised Practice Statement

The revised Practice Statement sets out requirements for management commentary and explains how those requirements can be met. It is divided into two parts.

Part A

Part A of the revised Practice Statement sets out general requirements and guidance that apply to management commentary as a whole. It discusses

• the identification, authorisation and statement of compliance;
• the objective of management commentary being to provide information that enhances users’ understanding of the entity’s financial performance and financial position reported and provide management’s insight into factors, including sustainability-related factors, that could affect the entity’s ability to create value and generate cash flows;
• material information and key matters, where information judged material for management commentary will typically differ from information judged material for financial statements because management commentary and financial statements have different objectives;
• completeness, neutrality, freedom from error and other attributes based on qualitative characteristics of useful financial information set out in the Conceptual Framework for Financial Reporting,
• coherence as the completeness, understandability and comparability of information in management commentary all rely on that information being presented as a well-integrated, coherent whole, and
• metrics by providing requirements and guidance for metrics included in management commentary.

Part B

The information included in Part B of the revised Practice Statement sets out requirements and guidance for six specified areas of content to be included in management commentary:

• the entity’s business model — how the entity creates value and generates cash flows;
• management’s strategy for sustaining and developing that business model, including the opportunities management has chosen to pursue;
• the resources and relationships on which the business model and strategy depend, including resources not recognised as assets in the entity’s financial statements;
• risks that could disrupt the business model, strategy, resources or relationships;
• factors and trends in the external environment that have affected or could affect the business model, strategy, resources, relationships or risks; and
• the entity’s financial performance and financial position — including how they have been affected or could be affected in the future by the matters discussed for the other areas of content.

Effective date and transition

The revised Practice Statement is effective for annual reporting periods beginning on or after 23 June 2025. Earlier application is permitted. No transition requirements are provided.

Since this opinion is not part of IFRS Accounting Standards, it is not subject to approval by the European Commission for use in the EU.

More information about the revised Practice Statement can be found in our iGAAP in Focus — IASB publishes revised practice statement on management commentary.

Sources: www.iasplus.com, iGAAP in Focus — IASB publishes revised practice statement on management commentary