a) Purpose of Management Commentary and Why It Was Not Made a Mandatory Requirement by the IASB

Purpose of Management Commentary:
Management Commentary is a narrative report that accompanies the financial statements and provides additional insights into a company’s operations, performance, and future prospects. Its primary purpose is to offer a clearer understanding of the company’s financial health, strategy, and governance practices by explaining the context in which the financial results have been achieved. It allows management to communicate more qualitative and strategic aspects of the business that are not captured in the financial statements themselves, such as market trends, risks, opportunities, and long-term objectives.

• Transparency: Management commentary helps to provide transparency by highlighting areas such as business strategy, governance, and key performance indicators.
• Stakeholder Engagement: It gives stakeholders (investors, employees, regulators, and the public) a fuller picture of the company’s operations, performance, and objectives, beyond just the financial numbers.
• Better Decision-Making: By providing this qualitative context, management commentary aids decision-making for investors and other stakeholders.

Why It Was Not Made a Mandatory Requirement by the IASB:
The International Accounting Standards Board (IASB) did not make Management Commentary a mandatory requirement for all companies for the following reasons:

1. Voluntary Nature of Non-Financial Reporting: Management commentary is designed to be flexible and tailored to the specific needs of each company. Mandating it would create a “one-size-fits-all” approach, which may not be appropriate for all companies.
2. Focus on Financial Statements: The IASB primarily focuses on ensuring that companies provide reliable and relevant financial information through the financial statements. Non-financial disclosures such as management commentary are outside the strict scope of financial reporting, allowing companies more freedom in what and how they disclose.
3. Differences in Reporting Needs: Not all companies have the same need for management commentary. Companies in different sectors (e.g., tech vs. manufacturing) might find some elements of management commentary irrelevant or unnecessary. The flexibility allows businesses to provide the most relevant information to their stakeholders.
4. Regulatory and Jurisdictional Differences: Different regions or jurisdictions may have varying requirements for additional disclosures. For instance, some countries or markets may require certain non-financial disclosures, while others may not.

b) Relevant Elements of Management Commentary for Umu Amaeshi Plc

Given that Umu Amaeshi Plc does not want to engage in social and environmental disclosure, the management commentary can still play a key role in achieving the company’s objectives by focusing on the following elements:

1. Business Model:
   • Explanation: The company should clearly articulate its business model in the management commentary, including how it generates value, its key markets, and its business strategies.
   • How It Helps: This section will help stakeholders understand the company’s operations, strategy, and overall value-creation process. For a company in sensitive sectors, this is important as it demonstrates how the company plans to mitigate risks and maximize opportunities in its operations.
   • Non-Environmental Focus: The commentary can focus on operational efficiency, product diversification, and market strategies, without focusing directly on environmental concerns.
2. Risk Management:
   • Explanation: This section should address the key risks facing the company, including economic, market, regulatory, and operational risks.
   • How It Helps: By detailing how the company identifies and manages risks, the commentary reassures stakeholders that the company is aware of and addressing potential challenges, such as regulatory changes or socio-political risks, without explicitly discussing environmental disclosures.
   • Non-Environmental Focus: While environmental risks could be mentioned, the commentary can instead emphasize operational and financial risks, such as market competition, liquidity risks, and geopolitical risks.
3. Governance and Strategy:
   • Explanation: The management commentary should provide an overview of the company’s governance structure, leadership, and strategy for future growth. This includes the company’s approach to achieving its strategic objectives and any investments being made to position the company for the future.
   • How It Helps: This helps attract foreign institutional investors by showing that the company has a solid governance framework and a clear path forward. It also demonstrates to the market that the company is committed to long-term success.
   • Non-Environmental Focus: The company can choose to focus on strategic growth plans, corporate governance, and investment in technology or expansion into new markets, without the need to dive into specific environmental or social initiatives.

Conclusion

Even though Umu Amaeshi Plc is hesitant to engage in social and environmental disclosures, it can still enhance its transparency and appeal to investors by focusing on the elements of business model, risk management, and governance and strategy within the Management Commentary. These elements will provide stakeholders with valuable insights into the company’s future prospects, operations, and long-term strategies, all while avoiding direct social and environmental disclosures.