The Management’s Discussion and Analysis report should be a powerful vehicle to communicate to shareholders a meaningful assessment of a company’s performance and future prospects.

So says comprehensive guidance contained in Management’s Discussion and Analysis: Guidance on Preparation and Disclosure, released today by the Canadian Institute of Chartered Accountants.

With seven fundamental principles, recommended disclosure practices and many examples, the 70-page draft establishes an integrated framework for MD&A disclosure. The CICA is hoping that it will be valuable to management and boards of directors and, because it will provide more useful information, valuable as well to investors, prospective investors, analysts and other users.

“MD&A can be a powerful tool for management to communicate how the company has created shareholder value and how it plans to continue doing so,” said Jim
Goodfellow, FCA, chairman of the CICA’s Canadian Performance Reporting Initiative board. “But to be useful to investors, MD&A disclosure must convincingly answer three basic questions: How does this company make money and create value? What makes this company valuable today and tomorrow? Why does this company deserve investors’ money? The better a company communicates with those who assess its value in capital markets, the better the markets will understand and reward underlying potential and prospects.”

The guidance points out that improved disclosure can lead to a lower cost of capital, increased financial analyst coverage, improved corporate governance, a more appropriate risk premium and better capital allocation decisions.

“This guidance expands on existing MD&A disclosure requirements, and in doing so provides a formula for significantly expanded insight that can be gained from MD&A. It will help companies to better communicate the “why” behind both past performance and future prospects by “connecting the dots” between otherwise separate pieces of internal and external information,” said Goodfellow.

“What we are proposing is a more integrated and strategic way of approaching MD&A. Applying this guidance will enable management and boards of directors to deliver more useful and complete information to investors. Especially in today’s global economy, it is critical that as much reliable, relevant and timely information as possible be disclosed to reduce market volatility. MD&A is a key element in achieving corporate disclosure goals.”

Comments and feedback on the document are sought. The exposure draft can be read or downloaded at www.cica.ca/mda.