MANAGEMENT’S DISCUSSION AND

ANALYSIS (MD&A)
 THE PROBLEM
An explanation of the company’s financial results in
necessary because:
• Many investors do not know how to read financial
statements;
• Even if they do, the financial statements with footnotes
are insufficient to:
– Judge the quality of reported earnings
– Determine whether past performance is indicative of
future results
 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. 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
 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 2009 vs. FY ’2008
• Interim period to date vs. comparable prior
year period
 PROSPECTIVE INFORMATON AND
UNCERTAINTIES IN MD&A
Four specific MD&A requirements may require disclosure of
prospective information and uncertainties:
1. Known trends, demands, commitments, events or uncertainties
that will result, or are reasonably likely to result, in the issuer’s
liquidity increasing or decreasing
2. Known trends in the issuer’s capital resources and expected
changes in the mix an cost of such resources
3. Known material trends that the issuer reasonably expects will
have a material effect on sales or income from continuing
operations
4. 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
 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
 MD&A REQUIRES A TWO-STEP ANALYSIS

1. If management of the issuer can determine that the clean-up

obligation to is not reasonably likely to occur, disclosure is
not required. If management cannot make this conclusion, it
must go to step 2.
2. Management must objectively evaluate the consequences of the
clean-up on the assumption that it will occur. Disclosure is
required unless management can determine that the effect would
not be material.
In this case, the issuer cannot conclude that the likelihood of
receiving the cleanup order is remote. Disclosure is required
because the effect of the cleanup would be material to the
issuer’s financial condition..