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Interim md & a disclosure strategies (sample)

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SEC REGULATION, SEC external reporting

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Interim md & a disclosure strategies (sample)

  1. 1. ResearchconductedbyArthurMboue 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
  2. 2. ResearchconductedbyArthurMboue 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
  3. 3. ResearchconductedbyArthurMboue  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)

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