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Nexia Ebner Stolz


A detailed and company-driven presentation: What the new rules require of management reports

The new stan­dard on group ma­nage­ment re­por­ting ta­kes ef­fect for fis­cal years be­gin­ning af­ter De­cem­ber 31, 2012. Its is­su­ance marks the first time that ma­te­ria­lity has been af­for­ded the sta­tus of a se­pa­rate prin­ci­ple. In (group) re­por­ting con­texts, ma­te­ria­lity re­fers to the qua­lity of con­tai­ning only ma­te­rial in­for­ma­tion.

The new Ger­man ac­coun­ting stan­dard on group ma­nage­ment re­por­ting, GAS 20, is ef­fec­tive for fis­cal years be­gin­ning af­ter De­cem­ber 31, 2012. It re­places the exis­ting stan­dards GAS 15, GAS 5, GAS 5-10 and GAS 5-20. Pa­rent com­pa­nies are re­qui­red to ap­ply the new ru­les when pre­pa­ring their group ma­nage­ment re­ports for the fis­cal year that will end De­cem­ber 31, 2013 (or, if their fis­cal year dif­fers from the ca­len­dar year, for 2013/2014). In ad­di­tion, ap­pli­ca­tion of the stan­dard for sin­gle-en­tity ma­nage­ment re­ports pre­pa­red in ac­cor­dance with § 289 of the Ger­man Com­mer­cial Code is re­com­men­ded. There are spe­cial pro­vi­si­ons for pu­bli­cly tra­ded com­pa­nies.

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What's different?

For the first time ever, ma­te­ria­lity, i.e., the no­tion that (group) ma­nage­ment re­ports should con­tain ma­te­rial in­for­ma­tion only, has been af­for­ded the sta­tus of a se­pa­rate prin­ci­ple. As an ex­am­ple, this me­ans that in­for­ma­tion about macroeco­no­mic and in­dus­try trends should be pre­sen­ted only in­so­far as it is re­le­vant to the un­der­stan­ding of a group’s (or in­di­vi­dual com­pany’s) course of busi­ness, po­si­tion and ex­pec­ted fu­ture de­ve­lop­ment. In ad­di­tion, un­der the new prin­ci­ple re­gar­ding the pro­por­tio­na­lity of in­for­ma­tion, the le­vel of de­tail in dis­clo­sures needs to be com­men­surate with the size of the re­por­ting en­tity and na­ture of its busi­ness, in par­ti­cu­lar, and also take into ac­count whe­ther it taps the ca­pi­tal mar­ket for fun­ding. The size and com­ple­xity of the group’s or in­di­vi­dual com­pany’s struc­ture should be re­flec­ted in the ma­nage­ment re­por­ting, the­reby brin­ging the group or com­pany its­elf into shar­per fo­cus.

New report on economic position

The dis­cus­sion of the group’s or in­di­vi­dual com­pany’s po­si­tion and course of busi­ness, the pre­sen­ta­tion, ana­ly­sis and as­sess­ment of its fi­nan­cial con­di­tion and re­sults of ope­ra­ti­ons, and the dis­cus­sion of the macroeco­no­mic and sec­tor-spe­ci­fic en­viron­ment can all be ad­dres­sed in the newly es­ta­blis­hed “re­port on the eco­no­mic po­si­tion.” Here, the us­eful­ness of the ma­nage­ment ap­proach shi­nes. In other words, when ana­ly­zing the group’s or in­di­vi­dual com­pany’s course of busi­ness and po­si­tion on the ba­sis of key fi­gu­res (e.g., EBIT, EBITDA or equity ra­tio) and non-fi­nan­cial key per­for­mance in­di­ca­tors (e.g., those re­la­ting to cu­st­omers and em­ployees), the pa­ra­me­ters that are used for in­ter­nal stee­ring pur­po­ses should also be in­clu­ded. The dis­cus­sions of the course of busi­ness and po­si­tion are to be com­bi­ned into an over­all state­ment, with ma­nage­ment’s con­clu­ding the re­port with an opi­nion as to whe­ther busi­ness was fa­vor­able or un­fa­vor­able on the whole.

Reduced forecast horizon

There’s good news when it co­mes to the re­port on ex­pec­ted de­ve­lop­ments. The for­ward-loo­king pe­riod has been re­du­ced from a mi­ni­mum of two years to just one year. Howe­ver, any fo­re­see­able spe­cial fac­tors af­fec­ting the com­pany’s or group’s busi­ness si­tua­tion af­ter this pe­riod must still be ad­dres­sed.

Increased forecast specificity

On the other end of the spec­trum, the grea­ter fo­re­cast spe­ci­fi­city that is now re­qui­red is li­kely to meet with little fa­vor. To com­ply with the new re­qui­re­ment, state­ments about ex­pec­ted de­ve­lop­ments must enable users to iden­tify a po­si­tive or ne­ga­tive trend and must de­scribe the in­ten­sity of the change (e.g., a sharp, si­gni­fi­cant, mi­nor or slight in­crease or de­crease). Mere com­pa­ri­sons like “we ex­pect sa­les to in­crease” are no lon­ger ac­cep­ta­ble. In­stead, fo­re­casts will need to be ac­com­pa­nied by a va­lue, a range of va­lues or a de­scrip­tive com­pa­ri­son (e.g., “si­gni­fi­cant sa­les growth”).
Par­ti­cu­lar at­ten­tion should be paid to a new twist. Go­ing for­ward, the re­port on ex­pec­ted de­ve­lop­ments must pre­sent the most im­port­ant fi­nan­cial and non-fi­nan­cial key per­for­mance in­di­ca­tors in a way that fa­ci­li­ta­tes a com­pa­ri­son with ac­tual fi­gu­res in the next re­por­ting year. The sub­se­quent year’s re­port on the eco­no­mic po­si­tion of the com­pany or group must in­clude a com­pa­ri­son of the pre­vious year’s fo­re­cast with ac­tual busi­ness. In the event of si­gni­fi­cant va­ri­ance, con­cer­ned re­aders may con­cur­rently ques­tion the qua­lity of the cur­rent year’s pro­jec­tions.

Report on opportunities and risks

Last but not least, the new ru­les aim to in­crease the mea­ning­ful­ness of the re­port on op­por­tu­nities and risks by re­qui­ring com­pa­nies to dis­cuss both items in equal mea­sure. To im­prove trans­pa­rency, the in­di­vi­dual risks and op­por­tu­nities can eit­her be ran­ked or, as pre­viously done, grou­ped into ca­te­go­ries. The re­port should then sum­ma­rize the group’s or com­pany’s risk and op­por­tu­nity si­tua­tion. The pre­sen­ta­tion must help users see the si­gni­fi­cance of the risks and op­por­tu­nities and also con­tain an ana­ly­sis of the con­se­quen­ces to be ex­pec­ted if the risks and op­por­tu­nities oc­cur. Any post-re­por­ting-date chan­ges in the si­gni­fi­cance of in­di­vi­dual risks and op­por­tu­nities, in­clu­ding their ma­te­ria­li­zing or pas­sing, are also to be ad­dres­sed in the (group) ma­nage­ment re­port.

Key takeaways

One thing is clear: The new stan­dard will make en­ti­ties fo­cus the sin­gle-en­tity and group ma­nage­ment re­ports they pre­pare for the 2013 fis­cal year more squa­rely on the com­pany or group and its en­viron­ment. Ge­ne­ra­liza­ti­ons are no lon­ger al­lo­wed. In ad­di­tion, grea­ter im­port­ance will be at­ta­ched to the re­port’s mea­ning­ful­ness over­all and to the spe­ci­fi­city of its fo­re­casts in par­ti­cu­lar. This is a chal­lenge to which all com­pa­nies must rise.

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