IFRS Practice Statement – Management Commentary
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IFRS Practice Statement – Management Commentary
Provides a non-mandatory framework for the presentation of management commentary relating to financial statements prepared in accordance with IFRS Standards.
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Purpose & Status
A voluntary framework, not a Standard
This Practice Statement provides a broad, NON-MANDATORY framework for the presentation of management commentary that relates to financial statements prepared in accordance with IFRS Standards. Entities are NOT required to comply with it unless a jurisdiction specifically mandates its use – it exists to promote consistency and quality where management commentary IS prepared, whether voluntarily or under local regulatory requirements.
The 2021 revision – broader than the 2010 original
The original 2010 Practice Statement focused narrowly on explaining financial statement figures. The 2021 revision substantially broadened the framework to address a company's ability to create and preserve VALUE over time – including its use of, and dependence on, a wider range of RESOURCES and RELATIONSHIPS (not just financial capital), reflecting growing investor interest in a more holistic view of company performance and prospects.
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Scope & Applicability
Who this framework is aimed at
The Practice Statement is intended for entities that prepare financial statements in accordance with IFRS Standards and choose (or are required by a jurisdiction) to accompany those statements with a narrative management commentary – often referred to as a "management discussion and analysis," "operating and financial review," or "strategic report" in various jurisdictions' own regulatory terminology.
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Objective of Management Commentary
Providing context the financial statements alone cannot
Management commentary should provide primary users of general purpose financial statements with MANAGEMENT'S VIEW of the entity's performance, position, and progress, including insight into: the entity's business model; its STRATEGY for sustaining and developing that business model; the RESOURCES and RELATIONSHIPS the entity depends on; material RISKS and how they are managed; and its performance and PROSPECTS – connecting this narrative directly to the amounts recognised and disclosed in the financial statements.
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The Six Content Elements
The framework's core content structure
#Content element
1Business model
2Strategy for sustaining and developing that business model
3Resources, and relationships with stakeholders, on which the entity depends
4Risks that could substantively affect the entity's business model, resources, or relationships
5External environment in which the entity operates
6Performance and prospects, including progress toward strategic objectives
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Business Model
How the entity creates and preserves value
A description of an entity's BUSINESS MODEL explains how the entity generates and preserves value over time – the inputs it uses, the business ACTIVITIES it undertakes to transform those inputs, and the OUTPUTS and OUTCOMES those activities produce. It provides the essential context within which users interpret every other element of the commentary, and against which the financial statements themselves should be read.
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Strategy & Resource Allocation
Not just aspiration – connected to actual decisions
Commentary on STRATEGY should explain management's plans for sustaining and developing the business model, including how the entity intends to allocate resources to achieve its objectives – connecting stated strategic priorities to concrete evidence of resource allocation decisions actually taken (e.g. capital expenditure, R&D investment, acquisitions), rather than remaining purely aspirational or generic.
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Resources, Relationships & Material Risks
Beyond financial capital
The 2021 framework explicitly recognises that entities depend on a BROADER range of resources and relationships than financial capital alone – including, where material, human capital (workforce), natural capital (environmental resources), social capital (customer/community relationships), and intellectual capital – and expects commentary to address dependence on these where material to understanding value creation.
Material risks, connected to the business model
Risk disclosure should be entity-specific and connected directly to how identified risks could affect the business model, resources, or relationships described elsewhere in the commentary – avoiding generic, boilerplate risk factor lists disconnected from the entity's actual circumstances.
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Performance & Prospects
Backward-looking results, forward-looking outlook
This element addresses BOTH historical performance (progress against previously stated objectives, key performance indicators relevant to the specific entity) AND forward-looking PROSPECTS – management's assessment of the entity's likely future development, connecting back to the strategy and risks described elsewhere, so a reader can assess the credibility and coherence of management's overall narrative.
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Guiding Principles – Materiality & Connectivity
Two of the framework's core principles
MATERIALITY
Management commentary should disclose information necessary for primary users to assess the entity's prospects and management's stewardship – using the SAME concept of materiality that applies to the financial statements themselves, entity-specific rather than a fixed checklist.
CONNECTIVITY
Information within the commentary, and between the commentary and the financial statements, should be presented in a way that shows the RELATIONSHIPS between pieces of information – e.g. connecting a stated risk to its actual financial statement impact, or a strategic initiative to the resulting capital expenditure.
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Guiding Principles – Forward-Looking & Balanced
The remaining core principles
Provides management's VIEW, not merely a restatement of financial statement facts Supplements, and is CONSISTENT WITH, the financial statements – not a substitute for them FORWARD-LOOKING, including credible information about future prospects, not solely historical Fair, BALANCED, and understandable – favourable and unfavourable aspects presented even-handedly Prepared and presented on a basis consistent over TIME, supporting comparability
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Worked Example – Applying Connectivity
Linking a stated risk to its financial statement impact
Example: A raw material price risk, connected through to the numbers
A manufacturing entity's risk section identifies exposure to volatile copper prices as a material risk to its business model.
Applying CONNECTIVITY, rather than leaving this as an isolated risk statement, the commentary would link it to: the entity's hedging strategy (linking to a note disclosure on derivative financial instruments), the actual gross margin impact experienced during the period (linking to the SOPL), and management's stated mitigation plans going forward (linking to the strategy section) – presenting the risk as part of one coherent, cross-referenced narrative rather than a standalone disclosure.
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Relationship with Sustainability Disclosure
A complementary, but distinct, framework
Since the establishment of the International Sustainability Standards Board (ISSB) in 2021, entities reporting under IFRS Sustainability Disclosure Standards (e.g. IFRS S1, IFRS S2) produce sustainability-related financial disclosures ALONGSIDE – and are expected to connect with – their general purpose financial statements. Management commentary prepared under this Practice Statement is a NATURAL location for that connectivity, though the ISSB Standards themselves are separate, mandatory-where-adopted pronouncements distinct from this non-mandatory Practice Statement.
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Management Commentary vs US MD&A
Comparison – IFRS Management Commentary vs SEC Management's Discussion and Analysis (MD&A)
FeatureIFRS Management CommentaryUS MD&A (SEC Regulation S-K)
Mandatory statusVoluntary framework – mandatory only if a jurisdiction separately requires itMANDATORY for US public company SEC filings, with specific prescribed content items
Content structureSix broad content elements, applied with judgement and materialityMore PRESCRIPTIVE regulatory content requirements specified by SEC rule
Broader capital/resource focusExplicit focus on human, natural, social, and intellectual capital in the 2021 revisionLess explicit; broader ESG-type disclosure in the US has developed through SEPARATE, evolving SEC rulemaking
The two frameworks share a common purpose – narrative context for financial statements – but differ sharply in binding force: IFRS Management Commentary is a voluntary framework, while US MD&A is a mandatory, closely regulated filing requirement.
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Glossary
Connectivity
A guiding principle requiring information within the commentary, and between the commentary and the financial statements, to show the relationships between related pieces of information.
Business model
How an entity generates and preserves value over time – its inputs, business activities, and the outputs/outcomes those activities produce.
Primary users
Existing and potential investors, lenders, and other creditors – the same primary user group the Conceptual Framework identifies for the financial statements themselves.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows