Accountants' Handbook Volume One: Financial Accounting and General Topics, Eleventh Edition

Chapter 8. MANAGEMENT DISCUSSION AND ANALYSIS^[218]

Sydney Garmong, CPA

Crowe Chizek and Company LLC

OVERVIEW

(a) INTRODUCTION.

Management must include, as part of Form 10-K filings, a section entitled "Management Discussion and Analysis of Financial Condition and the Results of Operations" (commonly referred to as Management Discussion & Analysis [MD & A]). The governing regulation is Section 229.303 of Regulation S-K and is referred to as Item 303. As stated in Item 303, the objective of the MD&A is "to provide to investors and other users information relevant to an assessment of the financial condition and results of operations of the registrant as determined by evaluating the amounts and certainty of cash flows from operations and from outside sources." The MD&A should permit shareholders and users to see and understand the specific decisions made through the eyes of management. The Securities and Exchange Commission (SEC) has stated:

The Commission has long recognized the need for a narrative explanation of the financial statements, because a numerical presentation and brief accompanying footnotes alone may be insufficient for an investor to judge the quality of earnings and the likelihood that past performance is indicative of future performance. MD&A is intended to give the investor an opportunity to look at the company through the eyes of management by providing both a short- and long-term analysis of the business of the company. The Item asks management to discuss the dynamics ...