The IASB has issued a preliminary views discussion paper 'Management Commentary' (the international term for the Operating and Financial Review, OFR) that has been prepared by a project team of staff from a number of national standard-setters, including the ASB. The paper sets out the views of the project team on which the IASB is inviting comments to help it consider whether it should add a project on management commentary to its agenda.

The main conclusion in the paper is that the IASB can improve the quality of financial reports by developing a standard on management commentary. In reaching this conclusion, the team has reviewed existing requirements around the world, such as the OFR, Management's Discussion and Analysis (MD&A) in the USA and Canada, and the German accounting standard on Management Reporting.

The team has found many common threads in its analysis of existing management commentary principles and requirements. On the basis of this analysis, the team has defined management commentary as:

"information that accompanies financial statements as part of an entity's financial reporting. It explains the main trends and factors underlying the development, performance and position of the entity's business during the period covered by the financial statements. It also explains the main trends and factors that are likely to affect the entity's future development, performance and position".

The purpose of management commentary is to help investors to:

• interpret and assess the related financial statements in the context of the environment in which the entity operates;
• assess what management views as the most important issues facing the entity and how it intends to manage those issues; and
• assess the strategies adopted by the entity and the potential for those strategies to succeed.

The project team's proposals for what a standard on management commentary should contain are largely similar to those in the ASB's Reporting Standard (RS) 1 'The Operating and Financial Review'. Like RS 1, they specify a number of principles and qualitative characteristics that should underlie the preparation and presentation of management commentary.

In particular the principles state that MC should:

• supplement and complement financial statement information;
• provide an analysis of the entity through the eyes of management; and
• have an orientation to the future.

The proposals also adopt the same approach as RS 1 in setting out a disclosure framework identifying the areas that management must consider, rather than any more specific disclosure requirements.

The discussion paper is available on the IASB's website at www.iasb.org. The IASB is seeking comments by 28 April 2006.