All New Disclosures should appear in the Management Discussion and
Analysis Statement
Presented by: Carrie Chiu (50191895)
Erica Tsang (50194420)
Sharon Cheung (50196817)
Danny Tse (50196240)
Agenda Definition of MDA
Objective of MDA
Background on MDA
Disclosure requirements in the US
Definition of All New Disclosures
Advantages of MDA
Disadvantages of All New Disclosures
Recommendations
Definition of MDA
Discuss:
financial condition
changes in financial condition
result of operations
known trend, uncertainties
material effect of the firm
Objective of MDA
assists user to assess the future prospects of the firm
make better decision
Background on MDA
MDA in other countries
compulsory component
e.g. Australia, Japan, the USA
guideline
e.g the USA: SEC Regulation S-K
Background on MDA (Con’t)
MDA in Hong Kong
voluntary disclosures
no guideline
may be disclosed in Chairman’s Report
may have other titles e.g. Corporate Governance
prepared by management & accountants
Disclosure Requirements in the US
Liquidity
Capital Resources
Results of Operations
Disclosure Requirements in the US (Con’t)
Liquidity
know trends & other factors
material affects liquidity
e.g. short-term, long-term needs
indicators of liquidity: cash
Disclosure Requirements in the US (Con’t)
Capital Resources
commitments for capital expenditures
sources of financing
know trends in capital resources
changes between debt, equity, off-balance sheet financing
Disclosure Requirements in the US (Con’t)
Results of Operations
significant components of revenues & expenses
material nonrecurring events/ trends/ uncertainties
affect the income
e.g. turnover, gross profit
Definition of All New DisclosuresDisclosures
no standard and regulations
depends on the company
any information
e.g. financial leverage, management level, human resources, risk & return, difference between the actual profits and budgeted profits, external environment
assumption:
All new disclosure = ALL the NEW Information
Advantages of MDA
more information for investment decision-making securities market efficiency better assessment of the company
Advantages of MDA (Con’t)
More information for investment decision-making
assist investors in assessing uncertainties
helpful in better enabling users to assess the probabilities of future profitability, cash flows, or dividend from their investments
forecast more accurately the company’s future earnings
Advantages of MDA (Con’t)
Securities market efficiency
improves the proper working of securities markets
potential to reduce inside information
raise the transparency of the company
facilitates the development of stock
market
Advantages of MDA (Con’t)
Better assessment of the company
non-monetary information such as financial leverage, management level, human resources would be disclosed
provides a clear picture of the company
enables investors to assess the future prospects of the company
Disadvantages of All New Disclosures
Irrelevant information
discloses significant & non-significant information
e.g. employment benefit
cannot help decision making
cannot show clear and concise picture
Information overloadrelevant, in great details, much supplyimportant, may not be desired by investors
e.g. Fixed asset investment is important report $500 purchase of a printer? report $20,000 refurbishment?
Disadvantages of All New Disclosures (Con’t)
Repetition to show better performance
e.g. turnover changes, % rise in gross
profit
Disadvantages of All New Disclosures (Con’t)
redundancycannot help decision makingcannot show clear and concise picture
Cost ineffective
monetary basis: hires staff to analyze
irrelevant and redundant information
time basis: disrupts normal daily business operation
Disadvantages of All New Disclosures (Con’t)
Decline in competitive advantage
discloses operations to competitors
follows suits by competitors
Disadvantages of All New Disclosures (Con’t)
affects service/product differentiation
decreases earnings
Recommendations
Management Discussion and Analysis in every annual report
BUT not all new disclosures
Recommendations (Con’t)
A new HKSSAP---governs the content of MDA
e.g. risk factors relating to specific
company
impact of technology development to the
company
industry development
build up confidence of the investorsimprove corporate governance in H.K.maintain H.K. as an international financial center
The End