all new disclosures should appear in the management discussion and analysis statement presented by:...

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