Jun 062014
 

Soledad Moya, EADA

Soledad Moya, EADA

PhD. Soledad Moya
Finance and Management Control Department

The roadmap towards comparability and transparency in Europe is leading some national accounting regulators, like the Spanish one for example, to devote efforts towards harmonization of accounting standards. But not only of accounting standards but also of financial information provided by entities and not always compulsory, but relevant for users in need of reliable and useful information. And a very recent example of that is the publication of the “Guía para la elaboración del informe de gestión de las entidades cotizadas” (Management Commentary Development Guide for listed companies). The CNMV (Spanish market regulator) has issued recently this non-binding guide in order to help companies with the definition of the content and principles that should be considered in the Management Commentary (Informe de Gestión). And what is the Management Commentary?

Following the definition provided by the IASB, the Management Commentary (MC) is a narrative report that provides a context within which to interpret the financial position, financial performance and cash flows of an entity. And here we can see one of the keywords of the MC and that is context. The MC should help users to understand all that is said in the financial statements in its context, combining past and future and considering all risks (operational and financial ones) that the entity may face. The definition also states that the MC also provides management with an opportunity to explain its objectives and its strategies for achieving those objectives

The MC is not always a compulsory document and that will depend on the jurisdiction. For the particular case of Spain, the MC is not compulsory for entities that, based on some criteria like revenues, assets or employees, can present abbreviated balance sheet and statement of changes in equity. However, large companies and of course listed ones do have to present it. In the IASB regulation, the MC is not a financial statement itself but does form part of the financial information provided by entities.

In 2010, the IASB, trying to standardize the content of the Management Commentary, issued the Management Commentary Practice Statement, where they provided some guidance about the content and general principles that should be considered. And then, the Spanish regulator, following the path started by the IASB, has published the “Guia…..” which is quite similar but not identical to that of the IASB and tries to enhance entities to move towards a more relevant and comparable MC.

And is the MC useful? In my opinion it will be useful as long as it provides relevant and reliable information. The MC can be an important element for communication between the entity and the markets and users. As long as the MC avoids standardized information, vague analysis and useless data, it can be a useful tool, complementary to the financial statements, for users trying to make economic and financial decisions. Therefore, the usefulness of the MC will depend on the willingness of companies to provide what is really needed in a timely and clear manner. And of course, any help from regulators regarding guidance and examples is always welcome.

Deja un comentario