Management Discussion and Analysis

Definition

Management Discussion and Analysis is basically business related information that has been mandated by the Securities and Exchange Commission, which must also come with 3 years of financial statements that have been audited. At present, it is considered as a prominent part of filing of registration and must reveal the liquidity related position, operations results, capital resources, prominent causes of material alterations in the finance related statements, events of infrequent or unusual nature, negative and positive trends as well as important uncertainties of the corporation.

Apart from this, the company management should also offer, in a narrative format, a discussion pertaining to the inflation effects on the finances of the corporation. This particular information should be offered without bias owing to relations with the public and hype.

Objective of Management Discussion and Analysis

The primary objective of the Management Discussion and Analysis is to offer the company’s existing as well as potential investors an overall and clear view of its present, future and past through the eyes of the management.

Thus, Management Discussion and Analysis offers a complete overview of a company’s last year’s operations and the manner in which the company performed in that particular period. The management also discusses the future plans, goals and the approach of a company towards its new projects.

The Management Discussion and Analysis is an extremely important part of the annual report, specifically for people who analyze the fundamentals that also include the style of the management and management itself. Even though, this particular section consists of useful and handy information about the company, the investors must remember that it is not fully audited.

The Management’s Discussion and Analysis throws a number of challenges before the auditing committees as well as their auditors since its scope is much broader when compared to the traditional statements. Besides, there is not much guidance for Management Discussion and Analysis preparation that is readily available. It lays emphasis on the business, incorporates non-finance related performance metrics as well as prospective data and information.

The Management Discussion and Analysis must be based on facts since its main purpose is to offer the readers the views of the management in terms of what is crucial for a the future of a company and what has the company’s historical performance been like.