Financial Statement Discussion and Analysis (formerly Narrative Reporting)

Project Status

A Project Brief was approved in March 2008.

Staff

Joy Keenan

Task Force

A TBG was formed to assist staff in developing the proposed IPSAS. The TBG members are:
Hong Lou
Bharti Prasad
Ron Salole
Frans van Schaik

Objective(s) of project

The objective of the project is to develop mandatory guidance on financial statement discussion and analysis.

Scope

The project applies to all public sector entities, other than Government Business Enterprises (GBEs), preparing and presenting financial statements using accrual IPSASs.

Background

March 2008: The IPSASB approved a Project Brief.

Issues

Issues the project will consider include (but are not necessarily limited to):

• What are the objectives of narrative reporting on financial statements?
• What are the main attributes of high quality narrative explanations?
• Are there essential content elements to include in narrative reporting on financial statements?
• What type of guidance is appropriate?

Task Force progress / Board discussions to date

March 2012: The IPSASB approved an Exposure Draft (ED) 47, Financial Statement Discussion and Analysis. ED 47 proposes that, because of the close link of financial statement discussion and analysis with the financial statements:

• The authority of the pronouncement should be an IPSAS with the same authority as accrual-basis IPSASs;
• Financial statement discussion and analysis should be required when IPSAS-based financial statements are prepared;
• The reporting entity and time period in financial statement discussion and analysis should be the same as for the financial statements; and
• The qualitative characteristics of financial reporting and constraints should be those addressed in IPSAS 1, Presentation of Financial Statements.

The ED proposes minimum content requirements for the preparation and presentation of financial statement discussion and analysis, as follows:

• An overview of the entity helps users to understand the entity and how the environment in which it operates affect its financial statements.
• Information about the entity’s objectives and strategies enables users of the financial statements to understand the entity’s priorities and to identify the resources that must be managed to achieve its objectives.
• An analysis of the entity’s financial statements includes:
  • Analysis of the current period financial statements which contains a description of the significant events, trends, conditions, and factors that affected the financial statements enhances users’ understanding of the financial statements.
  • Analyses of variances and trends includes those financial statement items that are important and significant to enhancing users’ understanding of an entity’s financial position and performance and changes in financial position and performance over a period of time.
• Information about the entity’s risks and uncertainties helps users to evaluate the impact of risks in the current period (e.g., contingent liabilities disclosed in the financial statements) as well as expected outcomes. Information provided may include the entity’s main exposures to risk, its opportunities, along with its policies and strategies for mitigating the risks and capitalizing on opportunities.

ED 47 includes implementation guidance and an illustrative example to assist in the preparation and presentation of financial statement discussion and analysis that complies with its requirements.

The ED has a response date of July 31, 2012.

December 2011: The IPSASB discussed a draft Exposure Draft (ED). The IPSASB tentatively agreed that the ED should propose a mandatory IPSAS, and that respondents’ views should be sought on the appropriateness of this proposal.

The IPSASB also tentatively agreed that all references to qualitative characteristics and constraints of financial reporting should be to those currently set out in IPSAS 1, rather than those proposed in Conceptual Framework ED 1 (CF—ED1).

The IPSASB supported the Illustrative Example, with certain changes suggested to the example and the text of the proposed IPSAS to improve its clarity.

September 2011: The IPSASB discussed a draft ED and agreed to a number of changes to the draft, including the further development of an illustrative example to show how the required information could be presented in the financial statement discussion and analysis accompanying the financial statements.

June 2011: The IPSASB agreed to change the title of such reports to “financial statement discussion and analysis” to clearly show the scope and close link to the financial statements.

The IPSASB discussed the issues related to the project including whether to provide guidance on the financial statement items and how to address the issue of future-oriented information.

The IPSASB agreed to develop a draft ED of a mandatory standard for financial statement discussion and analysis.

March 2011: The IPSASB reconfirmed that the scope of the project identified in the project brief (i.e., narrative reporting to be addressed in this project would be only in relation to the financial statements) and agreed to develop a term that clearly describes that scope.
The IPSASB also had a preliminary discussion of the issues the project will address in light of developments on the Conceptual Framework since the project brief was approved.