It was 30th November and it was the last day to file the Q3 financial statements and MD&A with SEDAR for one of my clients the CFO calls me to fix the MD&A, and I am not surprised about this last minute rush as this is quite common with many of the TSX Venture exchange companies. It has been a standard practice to use the previous quarter’s MD&A and just replace the numbers with the current quarter. No attention is given to other

information which will inform the reader about the Company’s past and future so that they can make an informed decision about their investment. I decided to educate the CFO’s and financial reporting managers of my clients about the nuances of MD&A and made a presentation to them. Here are some excerpts of such presentation.

What is MD&A:

MD&A compliments and supplements the company’s financial statements. It is a narrative explanation “through the eyes of the management” which:

  • Provides a balanced discussion of a Company’s results, financial condition and future prospects by a frank disclosure of good news and bad news
  • Help the investors understand the financial statements
  • Discuss the trends and risks that have affected or reasonably likely to affect the financial statements in future
  • Provides information about the quality and potential variability of the company’s earnings and cash flow.

 General Considerations:

  • It should focus on Material information. A Material information is that information that would influence the decision of a reasonable investor to buy, sell or hold the security if disclosed.
  • Ensure the financial information is reconciled with the financial statements
  • Use plain language
  • Ensure technical disclosure reconciles with NI 43-101 and NI 51- 101

Common Mistakes in MD&A: (non disclosures)

  • Under Discussion of Operations:
    • Factors that caused changes in revenues and costs
    • Disclosure by reportable segment
    • Plans and milestones for significant projects and costs to take the projects to next stage
  • Liquidity and Capital resources
    • Ability to generate cash and working capital requirements
    • Restrictions on subsidiaries ability to transfer money
    • Commitments and availability of financing
  • Risks and Uncertainties
    • Generic (not entity specific)
    • Potential impact on Company
  • Forward looking information
    • Failure to identify
    • Non-specific or no factors or assumptions
    • Previously disclosed FLI not updated

Always include a detailed, analytical and quantified discussion of the various factors that affect revenues and expenses, beyond the percentage change or amount.

Simply repeating variances that can be calculated from the financial statements does not help the investors understand trends. Omitting the analysis of material variance or simply qualitatively explaining a variance without quantifying the impact of the explanation is not sufficient.

The above are some observations and information about MD&A and its contents. Should you need more information or any help in preparation of MD&A  do not hesitate to contact Fared Sheik, Practice Lead at Fareed Sheik LLP at