Business review on Management Complementary

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A business review is a management commentary, and might sometimes be called an Operating and Financial Review (OFR). In the UK there is a statement of best practice that gives guidance on the content and presentation of information in an OFR, which is consistent with the statutory requirements for the content of the business review.

IFRS Practice Statement: Management commentary

This is a non-mandatory document that sets out guidelines to be followed by companies who wish to or are required to produce a management commentary in accordance with IFRS.

The guidance is intended to provide a basis for the development of good management commentary.

It offers a non-binding framework which could be adapted to the legal and economic circumstances of individual jurisdictions. The Practice Statement (PS) defines management commentary as a narrative report accompanying financial statements prepared in accordance with IFRSs that provides users with historical and prospective commentary on the entity’s financial position, financial performance and cash flows, and a basis for understanding management’s objectives and its strategies for achieving those objectives.

The PS prescribes a framework for the preparation and presentation of management commentary to assist management in preparing decision-useful management commentary to accompany financial statements prepared in IFRS Practice Statement: Management commentary This is a non-mandatory document that sets out guidelines to be followed by companies who wish to or are required to produce a management commentary in accordance with IFRS.

 

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Situation in the UK The UK Corporate Governance Code requires the board of directors to maintain a sound system of risk management, to carry out a review of effectiveness of the risk management system at least once each year and report to shareholders that the system is effective.

The UK Corporate Governance Code requires companies listed on the London Stock Exchange to report their risk management activities.

All companies listed on the London Stock Exchange publish a list of significant risk factors with explanation of why they are deemed to be significant and the steps taken to mitigate the risk. Typically, good reports would satisfy all of the requirements in the previous section

 

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Key performance indicators

Many companies might include key performance indicators in the annual report, perhaps, as part of the financial highlights.

Companies can choose to include whatever they like but ideally, the information reported would be on true KPIs, that is to say, those used by management in running the business.

There are no standard versions of many KPIs so best practice would dictate that the company should define how they are calculated.

Best practice would also require that the KPIs should be supported by narrative commentary.

KPIs might include both financial (e.g. ROCE, gross profit margin etc.) and non financial (e.g. growth in market share, quality scores etc.)

 

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In some aspects of reporting and disclosures, many large quoted companies publish an annual corporate social responsibility report.

This may be given a different name, such as a social and environmental report or a sustainability report, and is usually published as a separate document from the annual report and accounts, but at the same time.

Corporate social responsibility explained Corporate social responsibility (CSR) is a term for the responsibility that a company should have towards society and the environment in which it operates.

CSR has been defined in various ways:

 It is ‘a concept whereby companies integrate social and environmental concerns in their business operations and their interaction with their stakeholders on a voluntary basis.’  ‘While there is no single, commonly-accepted definition of corporate social responsibility.