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Interim md & a disclosure strategies (sample)
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Facts and Circumstances Consideration for disclosure
I. Overall presentation of MD & A
1. Overview The discussion generally
should cover the most
current quarter, most
recently completed year (
annual MD&A) and the
corresponding period of the
prior year interim MD&A
Article 3 of Reg S-X
requires the interim
financial report.
Major strategies leading to a compliant 10-Q disclosure
1. Identification of changes
a. Identifyand provide information about new know
trends, eventsand uncertainties that were not covered
in the most recent annual and/or interim period
b. Changes since the last fiscal year end in the application
of critical accounting policiesand estimates and the use
of off-balance sheet arrangements
2. Materiality testing
3. Comparison of company’s interim financial condition to
company’s financial condition as at the most recently
completed financial year-end
a. Comparison of company’s financial performance of
recent interim period with the corresponding period of
the previous year
b. Comparison of company’s cash flow of recent interim
period with the most recently completed financial year-
end
4. The causes or reasons of material changes in the financial
statements from prior period
5. Effects on past projection and future performances
a. Known material trends, events and uncertainties that
might make historical financial information not
indicative of future operations or financial condition
Any others information the registrant believesnecessary for an
understanding of its changes in financial condition and changes in
results of operations
No discussion of the effect of inflation and changing prices on the
company financial results of operations in the interim financial
statement
2.Clarity,
understandabilit
y and
organization
Is the interim MD&A well
organized and
comprehensive?
Update the summary of quarterly results by providing summary
information most current quarter ( year to date) and corresponding
quarter of the previous year
Give prominence to the current quarter
Assume that the reader has read or has access to the company
most previous annual MD& A and interim MD&A
Do not have to duplicate the discussion and analysis of financial
condition in annual MD&A
Management has a full discretion of the location of the required
disclosures
3.Emphasis of
Material
information
Does the interim MD&A
contain non material
information?
SEC staff expects management to evaluate if the information is no
longer material or useful,therefore it should be detected
Management should avoid unnecessary duplication and immaterial
detail.
Ref: SEC interpretation-Commission regarding MD&A, analysis of
financial condition and results of operations, FR-72, 33-8350,
12/19/2003
4.Analysis of
Material
Does the interim MD&A
focus on the analysis of
MD&A quarterly result is complementary to MD&A of the most
recent annual report and interveningquarterly reports
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Matters material eventsand
uncertainties?
The interim MD&A rules do not require a discussion of every line
item and its changes without regard of materiality
Some of the items are material to the discussion of the annual
results but are not material in the context of interim MD&A analysis
5.Material
Changes
Does the MD&A focus on
causes of material changes?
In FR- 72, the SEC encourages companies to present a tabular
comparison of the results in different periods, with percentage of
changes, followedby a narrative discussion and analysis of the
reasons for material changes and their implications. If a material
change is the result of multiple factors, each factor should be
described and quantified to the extentpracticable.
Ref: Form ADV, part 2
II. DRAFT and INTRODUCTION to MD & A
1.Drafting a
MD&A
(minimum
requirements)
Does the summarized
interim financial information
contain these items a least?
Sales or gross revenues
Income taxes
Extraordinary items
Material cumulative effects
Net income
Comprehensive income
Basic and diluted earnings per share for each period presented
Ref: APB 28.30 (ASC 270-10-50-1), FASB 128 (ASC 260-10)
Have these items been
disclosed separately?
Seasonal revenue,costs or expenses
Significant changes in estimates or provisions for income taxes
Disposal of a component of an entity
Extraordinary items
Material unusual or infrequentlyoccurring transactions and events
that are not designated as extraordinarily items
Contingencies and other uncertainties that could affect the fairness
of presentation of financial data
Changes in accounting principles or estimates
Significant changes in financial position
Ref: [APB 28.30 (c, d, e, f or h)][ASC 270-10-50-1]
Have these items been
disclosed pertaining
operating segment
disclosure?
Revenues from external customers
Intersegment revenues
A measure of segment profit or loss
Total assets for which there has been a material change from the
amount disclosed in the last annual report
A description of differencesfrom the last annual report in the basis
of segmentation or the measurement of segment profit or loss
A reconciliation of the total of the reportable segments measures
of profit or loss to the enterprise’s consolidated income before
income taxes, extraordinary items, discontinued operations and
cumulative effect of changes in accounting principles
Ref: [APB 28.30(i), FASB 131.33][ASC 270-10-50-1 and ASC 280-10-
50-32]
2.executive level
overview of the
company
Does the interim MD&A
introduce the MD&A with
executive summary?
The SEC staff expects that a good executive level overviewwould:
Include a brief presentation of the company products
Include key economic or industry wide factors relevant to the
company except the effect of inflationand changing prices
Inform the reader about how the company earns revenue and
generate cash
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If necessary or useful,discuss the company linesof business,
location (s) of operations and principal products and services
Provide insight into material opportunities, challenges and risks on
which the company’s executives are most focused for both short
and long-term, as well as the actions they are taking to address
these opportunities, challenges and risks
Inform reader about recent news developmentpertaining the
company
Ref: FFR No 72-501.12
3.Key indicators
of financial
condition and
operating
performance
Does the company have key
material financial indicators?
Disclose key variables and other factors which will be material to
the investing public in understand MD&A
Provide tabular disclosures of calculations, ratios and non-financial
statistical data which enhance the explanationof the operation
results and financial conditions of the company
Provide executive commentaries of these data based on
comparative methods between current quarter and corresponding
period of the previous year
III-Results Operations (current fiscal quarter versus corresponding period of the preceding fiscal years)