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ACCA Strategic Professional · Strategic Business Reporting (International) · Other reporting issues

Kestrel plc's management commentary states that profit is up 12%, but omits that a major customer representing 40% of revenue has given notice of termination, which is also relevant to going concern. The commentary is prepared under the Practice Statement on management commentary. Which is the strongest criticism of the commentary?

The commentary is not balanced and omits material information. Management commentary should cover risks and relationships that could affect long-term prospects and enterprise value, and losing a customer worth 40% of revenue is clearly such a matter. Forward-looking and non-financial information is permitted.

  1. AIt fails to give a balanced view of the factors affecting future prospects and omits material information relevant to long-term valueCorrect
  2. BIt presents forward-looking information, which is prohibited in management commentary
  3. CIt includes non-financial information, which belongs only in the financial statements
  4. DIt uses a performance measure that is not defined in IFRS Accounting Standards, which is never permitted

Explanation

Management commentary should provide information on resources, relationships and risks that could affect prospects, and should be balanced. Omitting a major customer loss is selective. Forward-looking information is encouraged rather than prohibited, and non-financial and non-IFRS measures can be included if properly explained.

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