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Even if they do.THE PROBLEM An explanation of the company¶s financial results in necessary because: Many investors do not know how to read financial statements. the financial statements with footnotes are insufficient to: ± Judge the quality of reported earnings ± Determine whether past performance is indicative of future results .
The item asks management to discuss the dynamics of the business and to analyze the financials It is the responsibility of management to identify and address those key variables and other qualitative and quantitative factors which are peculiar and necessary for and understanding and evaluation of the individual company .BASIS AND PURPOSE OF MD&A MD&A is intended to give the investor an opportunity to look at the company through the eyes of management by providing both a short and long-term analysis of the business of the company.
COVERAGE OF MD&A MD&A applies to: ± Both audited and unaudited financial statements included in: Prospectuses Annual Reports filed with Stock Exchanges and distributed to shareholders at AGM .
COVERAGE OF MD&A-CONTINUED MD&A requires: ± Explanation of material trends in comparative period financial statements. For results of operations and cash flow: Fiscal year 2010 vs. FY ¶2008 Interim period to date vs. comparable prior year period . FY 2009 vs.
PROSPECTIVE INFORMATON AND UNCERTAINTIES IN MD&A Four specific MD&A requirements may require disclosure of prospective information and uncertainties: 1. or are reasonably likely to result. Material events and uncertainties known to management that would cause reported results not to be necessarily indicative of future operating results or future financial condition . demands. Known trends. Known material trends that the issuer reasonably expects will have a material effect on sales or income from continuing operations 4. in the issuer¶s liquidity increasing or decreasing 2. commitments. events or uncertainties that will result. Known trends in the issuer¶s capital resources and expected changes in the mix an cost of such resources 3.
MD&A REQUIREMENTS APPLY TO SEGMENTS Often overlooked in the discussion and analysis Many companies have more than one business segment The disproportionate effect that one segment may have on balance sheet or income statement items may not be self-evident from consolidated financial statements .
Disclosure is required because the effect of the cleanup would be material to the issuer¶s financial condition.. disclosure is not required. Disclosure is required unless management can determine that the effect would not be material. Management must objectively evaluate the consequences of the clean-up on the assumption that it will occur. If management cannot make this conclusion. the issuer cannot conclude that the likelihood of receiving the cleanup order is remote. 2. it must go to step 2. In this case. 1.MD&A REQUIRES A TWO-STEP ANALYSIS If management of the issuer can determine that the clean-up obligation to is not reasonably likely to occur. .