KSR 9: What you should know about the standards for preparing a management report

This article answers the following questions:

• What does the Polish Accounting Standard No. 9 (KSR 9) regulate?
• For which periods should financial data be presented?
• What risks should be disclosed in the management report?

Although the Polish Accounting Standard No. 9 “Management Report” has been in place for quite some time, auditors conducting statutory audits still encounter management reports no longer than a single A4 page. These documents often rely solely on two years of financial data (or information copied directly from the financial statements) and may additionally include only brief, generic comments such as “an increase/decrease of such and such occurred”, without offering any meaningful explanations to help the reader understand the underlying reasons for the observed changes. 

Meanwhile, the management report – similarly to the financial statements – is an essential document reviewed and approved by the approving body, enabling investors and business partners to form an opinion on the entity’s condition and potential. It is therefore advisable to prepare it in compliance with the relevant standards.

What is the purpose of the Polish Accounting Standard No. 9?

The purpose of KSR 9 is to “support the preparation of the management report” and at the same time “promote good practices in this area”. To this end, the Standard, in Chapter 6, outlines appropriate methods for presenting data covering the following areas:

• Characteristics of the entity’s operations and resources – pursuant to Article 49 of the Accounting Act, this should include:
  • information on the branches and facilities owned by the entity,
  • information on the acquisition of own shares, in particular:
    • the purpose of their acquisition,
    • their number and nominal value (indicating what portion of the share capital they represent),
    • the acquisition price (or sale price in the case of disposal),
  • information on significant achievements in research and development,
  • information relating to environmental and employment matters,
• Objectives and risk – pursuant to Article 49 of the Accounting Act, this should include information on financial instruments covering:
  • the risks to which the entity is exposed (such as price fluctuations, credit risk, significant disruptions to cash flows and the possibility of losing financial liquidity),
  • the objectives and methods adopted by the entity for managing financial risk (including information on hedging methods for material categories of planned transactions for which hedge accounting is applied),
• Performance and financial position – pursuant to Article 49 of the Accounting Act, this should include:
  • information on the expected development of the entity,
  • financial and non-financial indicators,
  • information on events significantly affecting the entity’s operations that occurred during the financial year, as well as after its end and up to the date of approval of the financial statements,
• Outlook – pursuant to Article 49 of the Accounting Act, this should simply include information on the expected financial position,
• Corporate governance – pursuant to Article 49 of the Accounting Act, this should include information on the application of corporate governance principles in the case of entities whose securities have been admitted to trading on one of the regulated markets of the European Economic Area.

Presentation of data in the management report and the usefulness of information

As can be seen, the structure of data recommended by KSR 9 for inclusion in the management report aligns closely with the key elements set out in Article 49 of the Accounting Act. Each of these sections is also described in detail within the Standard. Particular attention should, however, be paid to those provisions whose inclusion in the document would, in practice, confirm the most important assumption from the reader’s perspective: that the entity’s application of the going concern principle is justified.

During financial statement audits, statutory auditors often confirm this assumption based on information that an ordinary user cannot find in a document prepared using only two years of data. When discussing the principles for preparing and presenting the management report, KSR 9 highlights that:

• It is good practice to present financial information for periods of up to 3 or 5 years – as such a range allows for a proper assessment of tendencies and trends; when selecting an appropriate time horizon, one should consider the entity’s industry, the nature of the matter addressed in the report and the amount of comparative data available,
• It is good practice to support forecasts with projections and forward‑looking estimates – key financial and non‑financial measures should be used to assess the entity’s outlook at least for the coming year; financial metrics used in forecasts or projections should be comparable with the information contained in the financial statements, and it is desirable to indicate the entity’s objectives and expectations over a longer time horizon.

The method of presenting the management report matters not only because of KSR 9

Expanding the management report to include appropriate financial information covering the previous five years (as well as forward‑looking projections for at least one year ahead) would enable its users to draw their own conclusions about the company’s financial and asset position and to confirm (or challenge) the validity of the going concern assumption applied by the entity. For this reason, it is worth drawing the attention of the entity’s management – and even supervisory and approving bodies involved in reviewing the management report – to the requirements of KSR 9. The purpose of this Standard is to ensure that the information contained in the management report is genuinely useful to its users and truly enables a reliable assessment of past, present and future developments. 

Ultimately, this benefits everyone.