Integration with financial statements
Why do companies prepare MD&A to support the users of financial statements?
To provide information that the (financial) statements do not provide
If an omission or misstatement of information influences or changes the decision of an investor to invest or continue to invest in a company, what can be said about the information?
Information is material
Who are the three primary users of the forward-looking information?
Investors, analysts and lenders
True or False: The nature of the industry has little to no effect on the choice of long-term objective that MD&A will focus on.
False
What are the five characteristics for MD&A to be considered useful?
Understandable, Relevant, Comparable, Verifiable, and Timely
What is the purpose of the integration with financial statements disclosure principle?
To complement and supplement the financial statements
What is an event that provides further evidence about conditions that existed at the end of the reporting period?
An adjusting event
True or False: Forward looking information explains and analyzes present events and circumstances, and their impact on future prospects.
False
When considering strategic perspective, which TWO types of information must be shown in the MD&A?
Qualitative and Quantitative
Company A Inc. estimated the percent of bad debts to be 5% but changed its policy of estimating bad debts and as a result the new estimate was 7% in 2021. If the company does not disclose the new computation of its estimates in MD&A which one of the characteristics is affected: Understandability, Relevancy, Comparability, Verifiability or Timeliness?
Comparability
Management discloses that they use straight line depreciation on all assets, does this refer to the complementing or supplementing characteristic?
Management should ensure that the information the MD&A contains is still materially complete, fair and balanced at the date of release if:
there is a time lapse between the date of the MD&A and its release
True or False: To provide a complete picture, management must provide an explanation if the company exceeds or falls short of previously disclosed future-oriented financial information (FOFI) or financial outlook.
True
True or False: It is not important to show long term objectives in the MD&A since stakeholder’s will see them yearly.
False
Company B's year end is Dec 31st, 2021. Due to a recent acquisition in technology it is able to complete a project earlier than anticipated, and thus recognize deferred revenue after interim financial statements are released. What must the company do to report this material change?
Press Release communicated to potential investors
Management discloses their future strategic plans to combat the pandemic, does this refer to complementing or supplementing characteristics?
Complementing
True and False: Managements determination of Materiality applies only to financial statement disclosures
False
The senior management members are being consulted about assumptions and risk factors and the approval process for disclosures. This is an example of what process?
The diligence process
What THREE items should management disclose in order to help investors understand the strategic direction of the company?
Objectives, Strategies and Resources available.
Company C's year end is Dec 31st, 2021 and reports according to ASPE. They have been contracted to build a sidewalk and interim financial statements show the company to be profitable. However due to unforeseen circumstances, one of the employees is injured on the job and files a lawsuit against the company for $250,000. The lawsuit is not disclosed by management, which characteristic could be affected by these actions?
Verifiability
Management disclosed that the large increase in sales for the quarter is related to the launch of their new product line, would this statement complement or supplement the financial statements?
Supplement
True or False: Completeness calls for management to identify errors in the financial statements and communicate the qualitative and quantitative information necessary for users to understand and evaluate the companies’ MD&A
False
What is a reasonable basis for forward-looking information?
It is more likely to exist when it relates to a company’s continuing activities rather than a new venture
AMD Company has three investors, Jack, Ginny and Jill. Jack intends to sell his shares in 6 months while Jill intends to hold her investment for the next two years. Ginny is unsure. Which time period should management include in the MD&A?
2 Years.
Company D has had a change in management and the board voted on a new CEO who is under investigation by SEC for insider trading. These investigations are not made public by management. Which characteristic is affected the most?
Relevant