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SEC Commissioner comments on MD&A, CD&A

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12 Mar 2006

In (PDF 68k), US SEC Commissioner Cynthia A.

Glassman identified improving the Management Discussion and Analysis (MD&A) as top priority of the SEC. Commissioner Glassman noted that "management can tell its story most effectively in the MD&A." – explaining why the results of operations are what they are. She notes, however, that MD&As sometimes lack ample explanation, are unnecessarily lengthy, and are not focused on telling the story clearly.

Management's story would be more complete if it contained more forward looking information, better explained trends and uncertainties that affect the business, and discussed in more detail the business' key drivers. While forward looking statements are generally not required, they help investors understand where the company is going, and they complement the historical financial statements, which tell where the business has been.

The IASB is examining this area as well. The Board's research agenda includes a project on the Management Commentary aimed at developing guidance on presenting explanatory information outside the financial statements. In October 2005, the IASB published a discussion paper examining the role the IASB could play in improving the quality of the management commentary. The paper may be downloaded from the IASB's Website. Comment deadline is 28 April 2006. In addition to the MD&A, the Commissioner spoke about disclosures of executive compensation, a proposed new Compensation Discussion and Analysis (CD&A), reporting on internal controls, and modernising the technology supporting the public availability of corporate financial data.

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