Introduction

The reports by Those Charged With Governance (TCWG) previously known as Director’s report is guided by Tanzania Financial Reporting Standard (TFRS) No 1 which is issued by National Board of Accountants and Auditors (NBAA). 

The standard sets main principles and disclosure requirements, within which those responsible for governance can narrate the main factors underlying an entity’s operations, financial performance, financial position, budget implementation and cash flows.

The standard was initially issued on 1st January 2010, and revised on 22nd  June 2020 at the 182nd  NBAA Governing Board meeting.  The revised standard is applicable to all entities except. entities that apply the Financial Reporting Standard for Micro Entities (FRSME).

The main aim of the standard is to assist TCWG in setting out a “forward-looking” analysis of the entity’s operations and financial review. This in turn will enable users of financial statements to assess viability of a company’s strategies and the value creating potential over short, medium and long-term.

For public sector entities, the requirement to present “Service Performance Information” as a part of the report by those charged with governance brings openness, transparency and accountability in the public sector. This is due to increased information disclosure requirements, that aim to empower general stakeholders in assessing the extent, efficiency and effectiveness of the entity’s service performances.

The revised standard is effective for financial statements covering periods that beginning on or after 1st January 2021. Early adoption is allowed. 

Key requirements of the revised standard

There are various disclosure requirements under the revised standard. Below, we have summarised the key requirements, among others, and its impact on your business. The detailed standard is available on the NBAA website for reference.

Disclosure requirement

Why is this necessary?

What it means for you

Principal risks and uncertainties facing the entity and commentary on an entity’s mitigation approach

 

The disclosure requirement enforces a responsibility by TCWG, of not only ensuring a robust risk assessment process is in place, but also policies for managing identified principal risks are developed.

The requirement aims to provide useful information to users of financial statements in understanding the significant risks, including the presented opportunities, that could derail the entity from achieving its value creation objectives.

 The company will need to establish:

  • Comprehensive Risk assessment process (for risk identification)
  • Risk registers
  • Business Continuity and Disaster Recovery Plans

Objectives and strategies of an entity

 

TCWG are required to highlight in their report, key performance indicators (KPIs), both financial and non-financial, that can be useful to the users of financial statements in measuring progress towards the achievement of the entity’s objectives. 

Disclosure of an entity’s strategies in place is also recommended, in respect of the stated entity’s objectives.  This requirement will enhance comparability within and across the industry, if the KPIs disclosed are accepted and widely used.
  • Increased requirement for KPI monitoring
  • Comprehensive knowledge of industry statistics and widely accepted KPIs
  • Regular review of financial and non-financial information to revise strategy in line with changes in business environment

 

Current and future developments, including performance

 

TCWG should describe trends and factors, backed up by analysis, both internal and external, that have an impact on the current development and performance of the entity, in context of its operations’ strategic objectives.  Moreover, it should describe how the past and current trends and factors are likely to impact the future prospects of the entity.

Example of such trends and factors could be, the impacts of COVID-19 outbreak on the entity or current or future planned level of investment expenditures.
  • Increased analysis of future business trends and its impact on the financial and non-financial aspects of the business.
  • More robust management accounting techniques involved e.g. budgets and variance analysis

Entity operating model

 

Report by TCWG should include the details of entity’s system of transforming key resources at disposal in delivering the products or services to the market and shall describe key outcomes achieved, both positive and negative, arise from an entity’s key operating activities.
  • Implement a “continuous development” approach to managing the operations of the business
  • Perform regular market analysis of the market position of products and services in comparison to your competitors

Resources

Information about all resources, both tangible and intangible, available to the entity in pursuit of its objectives, is required. The disclosure should highlight key strengths, factors affecting their availability, quality and affordability.  

Invest is research and development of best practices and stay up to date with market trends and technology.

 

 

 

Corporate Governance matters

 

Details such as the number of governance meetings held and matters discussed are required in the report by TCWG.  The report should also state all personal details of governance team members, including the details of planned meetings of Committees, and actual meetings held during the year.  The disclosure requirement aims to provide useful information to financial statement users in assessing how the reporting entity is complying with principles and codes of best practice.
  • Ensure regular monitoring and oversight mechanisms are in place.
  • Establish a market intelligence function that can be a key discussion in such governance meetings.

Stakeholders’ relationships

 

The report by TCWG should disclose significant key relationships with stakeholders, including the details of how those relationships are managed and its likelihood of affecting an entity’s performance and value.

Capital structure and Treasury policies

 

The report by TCWG should include discussion of the capital structure of the entity including comments on short and longer-term funding plans. Moreover, should discuss the treasury policies and objectives in place and as well the implementation status of those policies.

Invest in comprehensive financial analysis and modelling techniques that will help you predict the future of the company’s results with reasonable accuracy.

Considering taking advice for cashflow and liquidity management techniques to improve the future cashflows of the entity.

Cash flows and liquidity

 

The report by TCWG should include discussion on entity’s current and prospective liquidity. The discussion should include any factors that have influenced cash flows in the financial year or have significant effect on future cash flows, and also should cover the ability of the entity to funds its current and future operations.

 

Conclusion

The users of financial statements are increasingly growing their need of transparency and “future-oriented” presentation of financial reports. The pace at which companies are expanding coupled with tumultuous business environment and other economic factors, make it important now more than ever, to give comfort to decision makers about the future prospects of a business. The standard has been introduced to address the growing demand of such disclosures that go beyond historical financial reporting. At RSM, we understand the importance of ensuring compliance with such requirements and can work with you to provide tailored solutions for your business needs. Reach out to us for more information.

 

Download Template Here: Report to those charged with Governance

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