The revised IFRS Practice Statement 1 Management Commentary is a financial report accompanying the financial statements aimed at current and future investors to provide them with a better understanding of the organisation's financial statements, including insights into its long-term prospects.
The revised practice statement can be adopted by organisations regardless of whether they apply IFRS Accounting Standards or IFRS Sustainability Disclosure Standards.
Organisations can also apply the revised practice statement in conjunction with local laws, regulations, and requirements, including specific industry or topic guidelines issued by other organisations.
The revision of the practice statement followed investor feedback regarding organisations failing to focus on material issues, failing to tailor information provided to the specific entity, a disjointed approach to navigating information provided and an inability by investors to make reasonable comparisons.
The revised practice statement offers a global benchmark for regulators on the information that meets investor needs.
It is essential to note that this is not an IFRS Accounting Standard or an IFRS Sustainability Disclosure Standard; therefore, financial statements can comply with IFRS Accounting Standards without the accompanying management commentary.
In addition, the Management Commentary can be compliant with the Practice statement without a company preparing sustainability-related financial disclosures. Organisations can apply the practice statement voluntarily or mandatorily, if required by law or regulations.
The revised practice statement aims to foster connectivity between the financial statements and the sustainability report, while drawing on broad concepts from the Integrated Reporting Framework.
The revised practice statement specifies an overall objective for Management Commentary and disclosure objectives for six interrelated areas, namely: business model, strategy, resources and relationships, risks, external environment, financial performance and financial position.
It also contains guidance on how organisations select and present information, considering material information, focus on key matters, metrics, attributes of useful information and coherence.
The management commentary is expected to provide management's viewpoint, based on the information used in the organisation's management, the key matters identified by management, and insights from management's perspective.
It can include more forward-looking information on a wide range of matters, including those not yet recognised or disclosed in the financial statements. The revised practice statement is effective for annual reporting periods beginning on or after June 23, 2025, and earlier application is permitted.
The writer is a partner at PwC Kenya. He is an author who writes and speaks widely on corporate reporting topics.
