On 22nd June 2020, NBAA, through its Governing Board, decided to revise TFRS 1 - 'The Directors’ Report' to accommodate issues from the current environment. The revised standard was issued after a series of stakeholders’ consultations, internal assessments, and technical meetings. The Revised Standard became operative for financial statements covering accounting periods beginning on or after 1st January 2021.
TFRS 1 Exclusion
The Standard is applicable to all entities except those entities which apply the Financial Reporting Standard for Micro Entities (FRSME).
Operating and Financial Review (OFR)
Operating and Financial Review (OFR) is among the key concepts explained in the Standard. It is defined as a narrative explanation, provided in the report by those charged with governance, of the main trends and factors underlying the developments, operations, performance, financial position and cash flows of an entity during the financial year covered by the financial statements, and those which are likely to affect the entity’s future developments, operations, performance, financial position and cash flows.
Guiding Principles
Para 8 to 14 of the Standard provide the guiding principles which underpin the preparation and presentation of the Operating and Financial Review (OFR) in the report by those charged with governance. The Principles are:
Analysis of the business must be through the eyes of those charged with governance,
The focus should be on matters that are relevant to the interests of primary users and other stakeholders,
OFR should have a forward-looking orientation,
It should complement as well as supplement the audited financial statements,
It should be comprehensive, understandable and consider materiality,
It should be balanced and neutral, dealing with both good and bad aspects, and
It should be comparable over time.
Disclosure Requirements
Para 15 to 55 set out the requirements for the disclosures to be provided by those charged with governance in an OFR. We have summarized the Disclosure Requirements in the diagram below (click image to enlarge/download):
NBAA has produced a Disclosure Checklist to help a more effective implementation of the standard, enhancing transparency, comparability, and adherence to regulatory requirements.
Statement of Compliance
The Standard requires the Report of TCWG to have a clear statement of compliance with the provisions TFRS 1 and all other statutory legislations relevant to the particular entity.
Publication
All Public sector entities and those designated as Public Interest Entities (PIEs) shall be required to publish on their websites the report by TCWG alongside audited financial statements not later than 30 days after the approval of the audited financial statements by TCWG as per the requirements of the NBAA Technical Pronouncement No.1 of 2018. The responsibility for the publication rests with TCWG. (Para 56 of TFRS 1)
Approval
The report by TCWG must be approved by TCWG and signed by the person(s) authorized by the Board of TCWG, indicating names, designations and the approval date. (Para 57 of TFRS 1)
Disclaimer
We assure all readers of this article that we observed professional due care during its preparation; however, we kindly inform you that the materials and information in this article have been prepared or assembled by AGIM Consultants and are intended for informational purposes only. Any translations expressed are based on the firm's professional opinions and may not be taken authoritatively. In case of authoritative translation, we advise reference to the Standard itself or NBAA.