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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

explicit content.

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

cautionary language.

Discussion Questions:

  1. Do you agree that the MD&A should supplement and complement the financial statements?
  2. Review the a Financial Statements from “Bombardier” do you find these financial statements easy to understand?
  3. 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

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