MD&A is a narrative explanation, through the eyes of management, of how your company performed during the period covered by the financial statements, and of your company’s financial condition and future prospects. MD&A complements and supplements your financial statements, but does not form part of your financial statements.
Your objective when preparing the MD&A should be to improve your company’s overall financial disclosure by giving a balanced discussion of your company’s financial performance and financial condition including, without limitation, such considerations as liquidity and capital resources – openly reporting bad news as well as good news. Your MD&A should
- help current and prospective investors understand what the financial statements show and do not show;
- discuss material information that may not be fully reflected in the financial statements, such as contingent liabilities, defaults under debt, off-balance sheet financing arrangements, or other contractual obligations;
- discuss important trends and risks that have affected the financial statements, and trends and risks that are reasonably likely to affect them in the future; and
- provide information about the quality, and potential variability, of your company’s profit or loss and cash flow, to assist investors in determining if past performance is indicative of future performance.