SEC Releases Guidance Regarding MD&A
FOR IMMEDIATE RELEASE
Washington, D.C., Dec. 19, 2003 -- The Securities and Exchange Commissions today issued an interpretive release providing guidance regarding Management's Discussion & Analysis of Financial Condition and Results of Operations, commonly called MD&A, included in reporting companies disclosure documents.
The guidance reminds companies of existing disclosure requirements and provides additional guidance, designed to elicit more informative and transparent MD&A that satisfies the principal objectives of MD&A: (1) to provide a narrative explanation of a company's financial statements that enables investors to see the company through the eyes of management; (2) to enhance the overall financial disclosure and provide the context within which financial information should be analyzed; and (3) to provide information about the quality of, and potential variability of, a company's earnings and cash flow, so that investors can ascertain the likelihood that past performance is indicative of future performance.
Specifically, the guidance issued today emphasizes that MD&A should not be merely a recitation of financial statements in narrative form or an otherwise uninformative series of technical responses to MD&A requirements, neither of which provides the important management perspective called for by MD&A. Instead, the release encourages top-level management involvement in the drafting of MD&A, and provides guidance regarding:
- the overall presentation and focus of MD&A (including through executive-level overviews, a focus on the most important information and a reduction of duplicative information);
- emphasis on analysis of financial information;
- known material trends and uncertainties;
- key performance indicators, including non-financial indicators;
- liquidity and capital resources; and
- critical accounting estimates.
The release does not create new legal requirements, nor does it modify existing legal requirements.
A copy of the release can be found on the Commission's Web site at http://www.sec.gov/rules/interp/33-8350.htm under "Regulatory Actions / Interpretive Releases."