Management Discussion and Analysis

What is the Management Discussion and Analysis?

MD&A definition or management discussion and analysis is one of the sections in the annual performance reports of a public organization. It is specifically used to assess the financial and overall performance of the company for the financial year. The executives and high-authority members of the organizations are in charge of filling this section with quantitative as well as qualitative data that is used to measure the annual performance of the company.

In other words, the MD&A is one of the crucial elements of the annual reports that feature the information about the challenges the company has faced in the year, the strategies they have used to overcome those challenges, the compliance of the organization with the corporate laws, and so on.

The Uses of MD&A

The Financial Performance of the business is also reviewed in this section. Not only do they measure the previous year’s performance, but the C-Suite mentions their future goals. Management discussion, as the name suggests, is the section where the executives and management team evaluates the performance of the company and sets their future goals.

They also mention the strategies they will follow to achieve long-term business objectives. Most investors and financial analysts go over the management discussion section to review the financial position of the company and its growth potential. They consider it as the most valuable source of information about the business’ performance and Market position. In fact, the decisions of the investments are based on the data they collect from MD&A.

Requirements for MD&A

The FASB and SEC (Securities and Exchange Commission) has made it mandatory for each public organization to include this section in their annual reports. The companies that provide public offerings (stock and other securities) are supposed to register the business with the Securities and Exchange Commission. The latter will review the company to find out whether or not the company complies with the US security laws. Basically, all types of public organizations that offer stock and Bonds to the general public have to provide the investors with adequate information about the company’s financial position and performance. The management discussion & analysis is one of the 14 items that are to be added to the annual reports.

Each company is supposed to hire a certified and independent auditor, who is responsible for managing the financial statements of the firm. These auditors review the Balance Sheet, profit and loss account, and other sections of the annual reports to ensure that the company is in line with the compliance and corporate laws. However, they don’t audit the management discussion part. As mentioned above, the MD&A section specifies the company’s objectives, its strategies, challenges, and other qualitative data that can’t be audited. FASB has made it mandatory for public companies to create this section with balanced information. In addition to the positive aspects, the companies are supposed to mention the challenges and other negative points as well. In other words, the company must provide a balanced and accurate picture of its performance.