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What is the 'Management Discussion and Analysis - MD&A'

Management discussion and analysis (MD&A) is the portion of a public company's annual report in which management addresses the company’s performance over the previous twelve months. In this section, the company’s high-ranking officers analyze the company’s performance using qualitative and quantitative performance measures. In the MD&A section, management will also provide commentary on financial statements, systems and controls, compliance with laws and regulations, and actions it has planned or has taken to address any challenges the company is facing. Management also discusses the upcoming year by outlining future goals and approaches to new projects. The Management Discussion and Analysis is an important source of information for analysts and investors who want to review the company’s financial fundamentals and management performance.

BREAKING DOWN 'Management Discussion and Analysis - MD&A'

Management’s discussion and analysis is just one of many sections required by the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB) to be included in a public company’s annual report to shareholders. A company that issues stock or bonds to the public at large must register its offerings with the Securities and Exchange Commission (SEC), which oversees public companies compliance with U.S. securities laws and ensures investors are given adequate information about companies they are investing in.

The Financial Accounting Standards Board (FASB) is a nonprofit, private regulatory organization, which the SEC has designated as the body responsible for promulgating accounting standards for public companies in the United States. FASB outlines its requirements for the Management’s Discussion and Analysis Section.

Requirements for the Management Discussion and Analysis

U.S. securities law dictates that companies must hire an independent auditor to verify a company’s financial statements, such as its balance sheet, income statements, and its statement of cash flows. Auditors perform test work to determine if the financial statements are materially correct, but these Certified Public Accountants do not audit the information in the Management Discussion and Analysis section. The MD&A represents the thoughts and opinions of management, and provides a forecast of future operations, and therefore these statements can’t typically be falsified.

That said, the MD&A section still must meet certain standards. According to FASB, “MD&A should provide a balanced presentation that includes both positive and negative information about the topics discussed.” Even if management is giving its opinion on the state of its business, competition and risks, these statements must be based in fact, and there must be an attempt to paint a balanced picture of the company’s future prospects.

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