A 13- member committee has proposed a Management Review (MR) in the Annual Reports of listed companies in Sri Lanka on a voluntary basis. It will not be a mandatory requirement.
Initiated by a proposal from the Chartered Institute of Management Accountants (CIMA) Sri Lanka in 2006, a CIMA representative told The Sunday Times FT that the committee’s discussion paper has been open for comment from February 19 and will close on April 30. “Anyone can make any comments for the committee to take on board to revise any recommendations.” A small forum will subsequently be held to introduce the MR to representatives from listed companies and investment advisory units to take on board any changes and thereafter, to finalize and implement the MR.
CIMA first made a proposal to the Colombo Stock Exchange (CSE) and Securities and Exchange Commission (SEC) in June 2006 to commence a project to study the feasibility of introducing an Operating and Financial (OFR) style MR in the Annual Reports, the committee was appointed with members from CIMA, Ernst & Young, the CSE, the SEC, the Institute of Chartered Accountants of Sri Lanka (ICASL), Hayleys PLC, Aitken Spence PLC, DFCC Bank and Richard Peiris & Co. PLC.
According to the discussion paper, the committee is of the view that a principles, based approach as opposed to a rule based one would be more desirable with regard to the content/disclosures of the MR. The paper further states that the broad MR headings will include (a) the nature, objectives and strategic direction, (b) financial review, (c) principal risks and uncertainties and (d) current and future performance and trends.
The committee said it feels that the Board of Directors/Management of a company is best positioned to determine the detailed content, tone and presentation of the MR and that there is no ‘one best way’ of presenting the MR, the discussion paper states. Nevertheless, it is felt that it would be useful to produce a checklist of recommended disclosures of a MR by way of providing guidance in this connection.
Nature, Objectives and Strategic Direction
The MR should include a description of the business and the external and regulatory environment in which it operates as context for the analysis of performance in a given financial year and the financial position at year-end. The MR should discuss the key financial and non-financial objective of the business to preserve or enhance value over the longer term and should also mention the strategic direction being followed towards achieving the objectives of the business.
Financial Review
The MR should contain a detailed financial review and an analysis of the financial performance and position of the entity including profitability, segmental analysis, capital structure, cash flow, capital expenditure and liquidity.
Principal Risks and Uncertainties
The MR should include a description of the principal risks and uncertainties facing the entity together with a commentary on the Management’s approach to mitigating them. Information should also be provided on persons with whom the entity has contractual or other arrangements, which are essential to the business of the entity, to the extent feasible.
Current and Future Performance and Trends
The MR should describe the significant features of the performance and development of the business during the financial year, focusing on the business segments that are relevant to an understanding of the overall business performance and development.
The MR should analyze the main trends/factors that directors consider likely to impact future prospects. The MR should contain information and policies with regard to environmental matters (including the impact of the company’s business on the environment), the company’s employees and social and community issues. There should also be a confirmation of going concern status. |
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