MD&A (Management Discussion & Analysis) – Counterpart to or Distraction from Financial Reporting
The MD&A is an important component of a company’s reporting obligation. Intended to provide
investors with more comprehensive information of financial outcomes, MD&A permits greater
opportunity to present both short and long-term analysis. A study published by Contemporary
Accounting Research indicated that there is a strong relationship between MD&A content
and the accuracy of financial projections, suggesting that the quality of the MD&A is vital in
this relationship. As such, the effectiveness of the MD&A greatly depends on the quality of its
Attention directed to the quality and importance of the MD&A particularly intensified once
such large cases as those of Enron and WorldCom became public. In response to uncovered
malpractices, securities regulators strengthened disclosure rules for publicly traded companies
and toughened enforcement practices.
MD&A content has been an ongoing topic of debate in recent years. Management’s concern is
primarily related to the impact of regulated content on the quality of the MD&A and its usefulness
to investors. Anecdotally, it is suggested that regulators and not investors are increasingly becoming
the MD&A’s target audience. Regulators, in turn, continue to be preoccupied with the fact that
financial statements are not sufficiently informative for investors to determine whether past results
are indicative of future performance.
The Purpose of Management Discussion & Analysis:
The purpose of the Management Discussion & Analysis (MD&A) is to complement and
supplement the information provided through financial statements by affording balanced
discussions of company’s operating results and financial conditions.
Complexity has amplified as a result of emerging issues of particular importance to investors such as transition to International Financial Reporting Standards (IFRS), the environment and executive compensation.
MD&A – An Overview
The MD&A is a narrative explanation of how the company performed during the period covered
by the financial statements, the company’s financial conditions, and its future prospects. The
MD&A aims to improve overall financial disclosure by providing a balanced discussion of
company results and financial conditions. Moreover, the MD&A not only discloses changes in
financial conditions, but also enables the reader to understand trends, events and transactions.
Publicly traded companies: Click to view the Bombardier Annual Report
Publicly traded companies file their MD&A together with their financial statements. The
responsibility for preparing the MD&A rests with the management of the company. Similarly
to financial statements, the MD&A of publicly traded companies are signed off by the CEO
and CFO, and approved by the board (or, in the case of interim reporting, the audit committee);
certifying that provided information accurately reflects the state of the company.
The MD&A is an interim and annual document. The interim MD&A builds on past MD&A’s and
therefore should contain the most current information. Often, analysts and investors show more
interest in the interim MD&A as it provides renewed insight and revised company information.
The annual MD&A discloses financial year end information and often confirms what investors
already know. Additionally, CSA regulations state that the interim MD&A must update the annual
MD&A for all required sections in addition to providing analysis of current quarter and year to
date results, changes in operations, and any seasonal aspects that may affect financial conditions
The MD&A should supplement and complement financial statements, but not form part of
the financial statements. The MD&A should complement financial statements by integrating
financial information with managerial discussions about the business that is not evident in the
financial statements. For example, a manufacturing company may disclose new employee safety
expenditures under its operating expenses with a follow-up discussion on the actual safety
measure and its future benefits. The MD&A also supplements financial statements by providing
additional information about reported information in financial statements through the explanation
of events or decisions. For example, a farming company can present its quarterly earnings
which show better than expected growth. As an explanation, the company may mention that this
unexpected growth is expected to plateau in the near future, thereafter perhaps normalizing back
to projected activity and profit levels.
Forward looking MD&A:
A forward looking MD&A communicates management’s objectives for the entity and strategies in
pursuing those objectives. It also discusses known trends or uncertainties that may affect company
business. Disclosed information needs to be clearly defined as being forward looking. In addition,
factors that are subject to changing the outcome of disclosed forward looking information
need to be identified through material assumptions, appropriate risk disclosures, and use of
- Do you agree that the MD&A should supplement and complement the financial statements?
- Review the a Financial Statements from “Bombardier” do you find these financial statements easy to understand?
- Read the MD&A : Does the MD&A provide a better and clear view of the company results and financial position?
Original text by:By Kevin Girdharry, Elena Simonova, and Rock Lefebvre, information obtained from the CGA website.
Click to view :Bombardier Annual Report link