de en
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.

© Thinkstock

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.

back to top