No. The G100 does not consider the MC should form part of the financial report. The G100 considers that the MC is an essential part of the communication with shareholders as part of the annual report. We consider that the MC is a component of financial reporting but would distinguish it from the financial report which in our view comprises the financial statements and notes thereto which are also subject to audit. We do not believe that the MC should be included in the scope of the audit opinion on the financial statements.

We believe that at this stage an audit requirement may constrain the types of disclosures and discussion included in a MC. Experience with providing a discussion and analysis under AASB 1039 ‘Concise Financial Reports’, which is required to be audited, supports the view that the audit requirements diminishes the analysis.
 

The G100 believes that the IASB should give the development of requirements for an MC a high priority. We consider it important that a balanced and objective, principally narrative, discussion of the performance and prospects of the company written in clear and understandable prose is essential to inform shareholders and to supplement and enhance the information included in the financial statements. Guidance prepared by the IASB would provide a valuable benchmark in applying national requirements.
 

No. A form of MC is required for listed companies in Australia under the Corporations Act 2001 as part of the directors’ report which is not subject to audit. In view of this current requirement the G100 believes that the IASB can make a valuable contribution by establishing the principles and basis of reporting and, in doing so, create a benchmark for high quality reporting to shareholders. In this way the standard of reporting in response to national requirements is likely to be enhanced.
 

The G100 believes that communication of relevant information to shareholders (and other equity holders) should be the primary focus of the MC. We consider it is likely that an MC prepared to provide shareholders with a management perspective will also provide useful information to other users such as credit providers, other participants in capital markets and employees.
 

The G100 supports the inclusion of qualitative characteristics for the MC. It is important that the MC provide a balanced and objective commentary in a style that is readily understandable by users and presents relevant information that is supportable and consistent with the representations in the financial statements. In addition, it should be consistent with the basis of preparing the MC of prior years. Consistency of approach by the entity (while avoiding ‘boiler-plate’ presentation) is important to facilitate understanding by readers and inter-period comparability.
 

The G100 considers that the MC should outline the principles to be applied and supplement the principles with guidance about the content or matters that should normally be addressed. Given that the MC is to provide an evaluation from a management perspective the matters addressed and the format should be a matter for management to determine in the context of the operating environment of the company and management’s assessment of the information needs and expectations of shareholders in the company.

However, the G100 is concerned about the nature and extent of discussion in respect of future oriented information and how such requirements might sit with national restrictions on the publication of forecast financial information. It is in this area that care must be exercised in order to avoid breaching these requirements and to avoid disclosing commercially sensitive information.
 

The MC should provide high level guidance relating to the qualitative characteristics of information (relevance, understandability, comparability through time etc) and provide guidance on the content which is likely to satisfy information needs of shareholders. Accordingly, the G100 supports the approach taken in the Discussion Paper.
 

Under the Corporations Act 2001, section 299A, Australian listed companies are required to include a directors’ review of operations and financial condition as part of the directors’ report. Australian Stock Exchange (ASX) Listing Rules require listed entities to provide a review of operations and financial condition. In addition, the ASX Corporate Governance Council also recommends that entities provide such a report. While the Corporations Act provides a broad framework of the matters to be dealt with in the report it does not set out specific requirements. However, the Explanatory Memorandum accompanying the Corporations Act and the respective ASX requirements and recommendations refer to the G100 ‘Guide to Review of Operations and Financial Condition’ as providing appropriate guidance. (This is available on our website www.group100.com.au).

The G100 Guide is based on the United Kingdom ‘Operating and Financial Review’. In addition, Accounting Standard AASB 1039 ‘Concise Financial Reports’ requires entities other than listed companies to include a discussion and analysis to accompany the financial statements prepared in accordance with this Standard.

In view of the nature of the national requirements it would be counterproductive if there would be significant inconsistencies between those requirements and the MC proposals.
 

The G100 agrees that objective criteria should be established to determine whether information should be presented and discussed in the MC or whether the information should be required to be included in the financial statements and notes and therefore included in the scope of the audit. We strongly support the view expressed in paragraph 159 that risk management information is more appropriately viewed as MC information rather than as part of the notes to the financial statements.