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 MDADiscuss:

financial conditionchanges in financial conditionresult of operationsknown 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 countriescompulsory component e.g. Australia, Japan, the USAguideline e.g the USA: SEC Regulation S-K

Background on MDA (Con’t)MDA in Hong Kong

voluntary disclosuresno guidelinemay be disclosed in Chairman’s Reportmay have other titles e.g. Corporate Governanceprepared by management & accountants

Disclosure Requirements in the US

LiquidityCapital ResourcesResults of Operations

Disclosure Requirements in the US (Con’t)

Liquidityknow trends & other factors

material affects liquiditye.g. short-term, long-term needs indicators of liquidity: cash

Disclosure Requirements in the US (Con’t)

Capital Resourcescommitments for capital expenditures sources of financingknow trends in capital resourceschanges between debt, equity, off-balance sheet financing

Disclosure Requirements in the US (Con’t)

Results of Operationssignificant components of revenues & expensesmaterial nonrecurring events/ trends/ uncertainties

affect the incomee.g. turnover, gross profit

Definition of All New DisclosuresDisclosures

no standard and regulationsdepends on the companyany informatione.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 uncertaintieshelpful 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 informationraise the transparency of the company

facilitates the development of stock market

Advantages of MDA (Con’t)

Better assessment of the companynon-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 informationdiscloses significant & non-significant informatione.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 ineffectivemonetary basis: hires staff to analyze

irrelevant and redundant informationtime basis: disrupts normal daily business operation

Disadvantages of All New Disclosures (Con’t)

Decline in competitive advantagediscloses operations to competitorsfollows suits by competitors

Disadvantages of All New Disclosures (Con’t)

affects service/product differentiationdecreases 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 MDAe.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