Master’s Degree programme
in Languages, Economics and Institutions of Asia and North Africa
Second Cycle (D.M. 270/2004)
Final Thesis
The Management Discussion and
Analysis in China
An empirical analysis
Supervisor
Ch. Prof. Michela Cordazzo Assistant supervisor Ch. Prof. Franco Gatti
Graduand Ambra Marchetti
Matriculation Number 848726 Academic Year
INDEX
前言 ... 3
INTRODUCTION ... 6
CHAPTER 1 ... 10
THEEVOLUTIONOFTHEREGULATIONS ANDGUIDELINESFORMD&A ... 10
1.1 International Overview ... 11
1.1.1 US MD&A System ... 11
1.1.2 UK MD&A System ... 12
1.1.3 IASB MD&A System ... 13
1.2 The Evolution Of Chinese MD&A Disclosure Rules ... 14
CHAPTER 2 ... 32
LITERATURE REVIEW ... 32
2.1 Theoretical Research ... 32
2.1.1 Research On The Quality Of Disclosure ... 32
2.1.2 Research On The Assurance Of MD&A ... 36
2.2 Examples Of Empirical Analysis On MD&A In China ... 42
CHAPTER 3 ... 60
EMPIRICAL ANALYSIS ... 60
3.1 Research Design ... 60
3.2 Sample Selection ... 62
3.3 Frameworks Construction ... 64
3.4 Methods Used For The Measurements ... 67
3.5 Results Of The Analysis ... 69
3.5.1 Analysis Of The Frameworks ... 70
3.5.2 Comparison Of The Results ... 75
CONCLUSIONS ... 80
AKNOWLEDGMENTS ... 84
REFERENCES ... 86
前言
由于全球经济的发展，上市公司面临的内外环境变得越来越复杂。传统 的财务报告模型以资产负债表，损益表和现金流量表为基础，因此无法向投资者 提供有用的信息，因为它只关注过去而不是未来，缺乏相关的会计信息。信息不 足这一问题引起了国际范围的广泛关注并通过引入管理讨论和分析导致报告模式 的扩展。 管理层讨论与分析（MD＆A）是每家上市公司提供的年度报告的一部分。 它使用定量和定性信息从管理层的角度分析上一年的经营业绩和未来趋势。 MD ＆A 中披露的主题包括：使用叙述语言披露财务报表中的指标，解释决策过程， 公司未来的披露前景以及可能存在风险的信息。管理层讨论和分析的主要目标是 满足投资者的信息需求。随着全球经济的发展，这种需求也在增长。 如今，中国是一个发展中国家，由于1978 年开始的经济改革，在过去几 十年中经历了令人难以置信的经济发展。边界的开放吸引了外国投资者，他们正 在寻找新市场的投资机会并需要更详细和准确的信息，以便做出正确的投资决策。 本研究的目的是了解中国 MD＆A 的情况，并在考虑研究样本的上市公 司报告中评估 MD＆A 披露的质量。为了衡量 MD＆A 的质量，可以根据国家法 规的要求调查样本公司年度报告的 MD＆A 部分中披露的信息。该研究是从理论 角度和实证角度进行的。从理论的角度来看，为了提供清晰的监管情况，本研究 提供了中国管理层讨论和分析法规演变的完整概述。此外，这项工作回顾了以前 关于这一论点的理论和实证研究。 从实证的角度来看，本研究试图根据公司在 MD＆A 准备期间遵循的标准中规定的内容要求，评估年度报告 MD＆A 部分中 提供的信息的披露质量。 因此，本研究有两个主要目标。第一个是，考虑到法规要求试图了解中 国上市公司年报中 MD＆A 的披露水平通过调查报告。第二个目标是分析多年来 MD＆A 披露水平的变化，旨在证明法规的实施导致更高的 MD＆A 披露水平。 本书分为三章：MD＆A 法规和指南的演变，文献综述和实证分析。第一 章提供了中国 MD＆A 监管体系的完整图景。但是，为了提供基准，首先简要介 绍西方国家制定的最重要的标准。事实上，与美国和英国的系统相比，中国的MD＆A 系统仍处于起步阶段。美国证券交易委员会于 1968 年在“准备和提交注 册声明指南”中正式引入了管理层讨论和分析，从那时起，它就没有停止实施这 些规定，特别是在安然丑闻之后。这一事件对美国和整个世界产生了巨大影响， 促使美国证券交易委员会以更广泛的方式修改披露规则。 在英国，1992 年会计准则委员会颁布了一项包括 MD＆A 的法规，并将其命名为 运营和财务审查（OFR）。法规的实施不是强制性的，而是自愿性的，以使大公 司能够披露更连贯和可读的信息。然后在2010 年，IASB 发布了“IFRS 实践声明 - 管理评审”。它不是标准，而是非强制性框架。使用 IFRS 编制财务报表的公司 可以选择遵循编制管理评审（或MD＆A）的框架。 考虑到中国证券监督管理委员会在2001 年对中国管理层进行了讨论和分 析，可以说最近与西方国家进行了比较。自 2001 年以来，中国证券监督管理委 员会和证券交易所从未停止执行标准，并经常对其进行修订。本文的第一章详细 介绍了中国 MD＆A 监管体系的演变，重点关注标准的原则和内容要求中发生的 主要变化。它特别关注 2012 年和 2015 年修订“公司信息披露内容和格式指引第 2 号 - 证券公开发行年度报告”的内容和格式。在过去两年中，法规经历了重大 变革变化。 为了全面概述国内关于 MD＆A 的研究现状，本文第二章重点介绍了中 国作者以往对中国管理的研究和分析。选定的文章分为理论和实证研究。理论研 究主要是指对 MD＆A 披露制度的质量进行评估。他们评估了整体披露的低水平， 并列举了一些缺点。例如，中国的 MD＆A 缺乏正式的统一监管体系，因为监管 分散在多个文件中，并且存在一些影响信息质量的不一致（姜慧杰，2008）。此 外，与投资者决策过程密切相关的前瞻性信息不足以弥补历史信息的不足。管理 层讨论和分析的另一个重大缺点是自愿信息的存在不足。在西方国家，MD＆A 基于自愿信息，上市公司可以通过这些信息证明其竞争优势，但是在中国，上市 公司更愿意只披露强制性信息，因为他们担心提供太多信息会导致揭露秘密并使 公司处于不利地位。此外，理论研究还涉及 MD＆A 保证体系的问题，其特点是 存在一些困境，如理论薄弱，缺乏制度和缺乏实践（李燕媛与张蝶， 2012）。作 者还提出了一些建议，以克服上述缺点。 本研究的第三章致力于作者进行的实证分析。该研究主要关注两个主要 问题：第一个是中国 MD＆A 公布的质量水平。第二个是多年来质量水平如何变
化？为了回答这些问题，只有法规中发生的两个最重要的变化被视为分析的参考： 2012 年制定的标准修订，加上“2011 年上市公司年度报告工作备忘录 - 编号”。 5 - “上海证券交易所发布的管理层讨论与分析要求”及 2015 年制定的标准修订。 根据这些规定，构建了两个框架并应用于 30 家中国上市公司的年度报告，这些 公司被选为“日经 300 指数”的样本。调查中考虑的报告涉及 2011 年，2012 年， 2014 年和 2015 年。然后详细解释结果。首先，作者介绍了与 2012 年和 2015 年 年度报告分析相关的结果，然后她考虑了与所选年份进行的分析相关的结果，并 将每年的结果相互比较以突出显示变化。分析结果表明，MD＆A 的质量多年来 得到了有效改善，特别是与标准的修订同时进行。虽然多年来披露水平有所提高， 但总体质量仍然很低。许多学者在理论和实证研究中都证明了这一点。他们强调， 中国的MD＆A 信息披露制度本身存在诸多缺陷，直接导致披露质量低下。 这项工作的最后部分提供了结论，以提供对情况的完整理解。它们是基 于第 3 章中进行的实证分析的结果。此外，在本节中，作者解释了研究的不足之 处，并为进一步研究该主题提供了一些建议。该研究的局限性在于：首先，为研 究选择的样本非常小，这无疑会影响最终结果。其次，MD＆A 信息披露质量的 评估仅基于项目是否被披露而不检查披露水平，因为为了判断披露的准确性需要 训练有素的眼睛。基于以上缺点，提出了进一步研究的一些建议。例如，您可以 使用更广泛的公司样本和更复杂的评估系统进行分析，或者您可以研究中国 MD ＆A 的质量特征，而不是具有更发达的 MD＆A 系统（例如美国）的国家。通过 这种方式，可以找到中国与西方发达国家 MD＆A 披露质量的异同，并提出一些 改善中国MD＆A 现状的建议。
INTRODUCTION
The Management Discussion and Analysis (MD&A) is a section of the annual report provided by every listed company, where the business performance over the previous year and the future trends are analysed from the management’s point of view, using both quantitative and qualitative information. In the MD&A various topics are disclosed: the indicators presented in the financial statement are analysed and discussed in narrative form, the decision-making processes are explained and the future prospects of the company are presented, providing also information about the risks that may be faced. In fact, the main objective of the Management Discussion and Analysis is to satisfy investors’ information need, which is growing along with the global economic development.
Nowadays, China is the second largest economy in the world and it plays an increasing important and influential role in the development of the global economy. For this reason, it attracts the attention of a ever-increasing number of external investors, who require complete and detailed information about the companies in which they are interested, in order to make the right investment choices.
This is the reason why the aim of this study is to understand the situation of MD&A in China, as well as to evaluate the quality of the disclosure of the MD&A in the reports of the listed companies, taken into consideration as a sample for the research. This can be measured investigating the information disclosed in the MD&A section of the annual reports of the sample companies, in relation to the requirements stated by the regulations. The research is conducted from a theoretical point of view, along with an empirical point of view.
On one hand, from the theoretical perspective, the study presents a complete overview of the evolution of the regulations regarding the Management Discussion and Analysis in China, in order to provide a clear image of the regulatory situation. In addition, a review of the previous researches, both theoretical and empirical, conducted on the argument is presented.
On the other hand, from the empirical point of view, this study attempts to evaluate the disclosure quality of the information presented in the MD&A section of the annual report, in light of the content requirements stated in the standards followed by the companies during the preparation of the Management Discussion and Analysis.
Therefore, this study has two main objectives. The first one is trying to understand the disclosure level of the MD&A in the annual report of Chinese listed companies through an investigation of the reports, taking into consideration the requirements issued by the regulations. However, the second objective is analyse the changes in the level of disclosure of MD&A through the years, with the aim of demonstrating that the implementations of the regulations lead to a higher MD&A disclosure level.
The work is structured into three chapters: the evolution of the regulations and guidelines for MD&A, the literature review and the empirical analysis. The first chapter provides a complete image of the regulatory system of Management Discussion and Analysis in China, but it starts with a brief introduction of the most important standards developed by Western countries, in order to furnish a benchmark for comparison. In fact, the MD&A system in China is still in its infancy, compared to the US and UK systems. The US SEC officially introduced the Management Discussion and Analysis in 1968 in the “Guides for Preparation and Filing of Registration Statements” and, since that moment, it has never stopped implementing it, especially after the Enron scandal. This event had a huge impact on America and the entire world, stimulating the SEC to revise the disclosure rules in a more extensive way. However, in the UK, the Accounting Standards Board issued a regulation including the MD&A, naming it “Operating and Financial Review” (OFR). The application of the regulation was not mandatory, but voluntary, in order to prompt large companies to disclose more coherent and readable information. Then in 2010, the IASB issued the “IFRS Practice Statement - Management Commentary”, which again is not a standard, but a non-mandatory framework that firms, adopting the IFRS for the preparation of their financial statements, may choose to follow for the presentation of the Management Commentary (or MD&A). The “Practice Statement” had an influence on all the members of the IASB. In comparison to Western countries, the adoption of the MD&A system in China is recent, considering the fact that it was introduced in 2001 by the CSRC. After this moment, new guidelines were issued and then revised through the years. This study focuses the attention on the revision of the “Standards for the Contents and Formats of Information Disclosure by Companies Offering Securities to the Public No. 2 – Contents and Formats of Annual Reports” of 2012 and 2015, when major changes were made to the regulations. The requirements for the disclosure of the MD&A stated by the
standards in both years are analysed in detail, highlighting the amendments made and enumerating the principles and content requirements issued.
The second chapter of this work focuses the attention on the previous researches conducted by Chinese authors on the situation of Management Discussion and Analysis in China, in order to provide a complete overview of the status of the domestic research. The articles selected are divided into theoretical and empirical studies. The theoretical ones mostly refer to the evaluation of the quality of the MD&A disclosure system, assessing that the overall level of disclosure is low and enumerating the many shortcomings. For example, the MD&A in China lacks of a formal unified system for requirements, because the regulations are dispersed in several documents, presenting some inconsistencies, which affect the quality of the information (Jiang Huijie 2008). Furthermore, the forward-looking information, which closely relate to investor’s decision-making process, are insufficient to cover the lacks in the historical information (Hui Nan, 2008). Another significant shortcoming in the Management Discussion and Analysis is the poor presence of voluntary information. While in Western countries the MD&A is based on voluntary information, through which listed companies can prove their competitive advantage, in China listed firms prefer to disclose only mandatory information, because they are worried that presenting too much information can lead to reveal secrets and put the company at a disadvantage position. In addition, the theoretical studies also address the issue of the assurance system of MD&A, which is characterized by some dilemmas, such as weak theory, lack of system and lack of practice (Li Yanyuan and Zhang Die, 2012). The authors also propose some suggestions, in order to overcome the above shortcomings.
The third chapter of this study is dedicated to the empirical analysis conducted by the author. The research focuses on two main questions: what is the quality level of MD&A disclosure in China and how the quality level changes through the years? In order to provide an answer to these questions, only the two most important changes occurred in the regulations are taken into consideration as a reference for the analysis: the revision of the standards made in 2012, in combination with the “Working Memorandum on the 2011 Annual Report of Listed Companies - No. 5 - Requirements for Management Discussion and Analysis” issued by the SSE, and the revision of the standards made in 2015. On the basis of these regulations, two frameworks are constructed and applied to the annual reports of 30 Chinese listed companies, selected as a sample from the “Nikkei Asia 300” index. The reports taken into consideration for
the investigation are those referring to 2011, 2012, 2014 and 2015, with the purpose of evaluating the disclosure quality of the MD&A in every year and analysing the changes in the disclosure level in the period. Then the results are explained in detail. First of all, the results related to the analysis on the annual reports of 2012 and 2015 are presented and then, the results of the investigation conducted on all the years selected are taken into consideration and compared with each other, in order to highlight the changes.
In the final part of this work, conclusions are presented, in order to provide a complete understanding of the situation. They are based on the results of the empirical analysis conducted in the third chapter. Moreover, in this section the shortcomings of the research are addressed and some suggestions are offered for further studies on the subject.
CHAPTER 1
THE
EVOLUTION
OF
THE
REGULATIONS
AND
GUIDELINES
FOR
MD&A
In the annual report of any listed company a section referred as “Management Discussion and Analysis” can be found. Here the high-ranking officers analyse the company’s performance, explaining in a narrative way the indicators reported in the financial statement and discussing also the future projects that will be faced by the entity. In this way the MD&A becomes an important source of useful information for analysts and investors. In fact, the main objectives of the Management Discussion and Analysis are to enable the readers of the financial statements to better understand the changes in the indicators and the financial condition of the entity and to facilitate the comprehension of the strategic and operational decisions taken by managers that will affect the company’s future performance. Furthermore, in the MD&A section are disclosed the risks associated with the business operations and the past trends, as well as the efforts the management has done in order to soften those risks and fulfil the plans. There might also be some additional information, which are not disclosed in the financial statement, but the management judges to be an added value for stakeholders.
Talking about the regulations regarding the MD&A disclosure, it is important to underline the fact that there are no international standards or fixed rules, but each country provides its guidelines. However, the main contents requirements are the same in every regulation.
This chapter presents an overview of the most significant regulations about the disclosure of the MD&A, focusing the attention on countries such as the USA and the United Kingdom, followed by an in-depth analysis of the evolution of the Chinese regulations.
1.1 International Overview
1.1.1 US MD&A System
The US Management Discussion and Analysis system is the most complete and mature in the world. In the early ‘30s, the SEC1 began the researches on the MD&A disclosure issues under the authority of the Securities Act2 of 1933 and the Securities Exchange Act3 of 1934. Finally, in 1968, the Commission issued the “Guides for Preparation and Filing of Registration Statements”, where, in Article 22 of the “Financial Data”, entitled “Summary of Earnings”, requires a discussion and analysis of anomalies affecting earnings and notes indicating a reversal of the most recent operating results. This is the first time the SEC has made a disclosure request for MD&A.
In 1974, some rules of the Securities Act Release were amended to require the introduction of a discussion and analysis of the summary of operations in the annual report.
Later, in 1980, the SEC revised the format of the annual report 10-K, bringing a significant change in the content of the annual report and establishing the main framework for MD&A disclosure, stating that the management should discuss and provide information about liquidity, funding sources, operating results and any other information that helps readers to understand the company's financial situation and changes in operating results.
In 1989, the Commission issued a detailed guide on MD&A, which should include forward-looking information, an analysis of the short-term and long-term liquidity and source of funds, major changes in financial statement, segment information, an analysis of investments and financing needs, etc.
1 “The U.S. Securities and Exchange Commission (SEC) is an independent federal government agency responsible for protecting investors, maintaining fair and orderly functioning of securities markets and facilitating capital formation. It was created by Congress in 1934 as the first federal regulator of securities markets”. (Available at https://www.investopedia.com)
2 “The Securities Act of 1933 was the first major legislation regarding the sale of securities. The
legislation had two main goals: to ensure more transparency in financial statements so investors can make informed decisions about investments; and to establish laws against misrepresentation and fraudulent activities in the securities markets”. (Available at https://www.investopedia.com)
3 The Securities Exchange Act of 1934 (SEA) was created to govern securities transactions on the secondary market, after issue, ensuring greater financial transparency and accuracy and less fraud or manipulation. (Available at https://www.investopedia.com)
At the beginning of the XXI century, the Enron scandal shocked America and the entire world, prompting the SEC to fully reflect on the disclosure rules. In consequence, in 2003 the SEC released the “Guidance Regarding MD&A”, reminding companies of existing disclosure requirements and providing additional suggestions regarding:
• the overall presentation and focus of MD&A; • the analysis of financial information;
• the known material trends and uncertainties;
• the key performance indicators, including non-financial indicators; • the liquidity and capital resources;
• the critical accounting estimates.
Although the US MD&A system has undergone many years of changes, in general, it has three main objectives: the first one is to provide a narrative explanation of the company's financial statement, so that investors can look at it from the management's point of view, the second one is to strengthen the overall disclosure, provide a background for the information and analyse the financial information in this context. The third objective is to provide information about the company's quality, income and cash potential changes, so that investors can determine the company's past performance and they can predict the company's future trends.
1.1.2 UK MD&A System
The UK's "Operating and Financial Review" (OFR) is equivalent to the "Management Discussion and Analysis" of the United States. In April 1992, the Accounting Standard Board (ASB) proposed to include OFR in the annual report of large companies, using voluntary and flexible rather than mandatory disclosure methods, with the aim of emphasizing more coherent and readable discussions. After this, in early 2000s, the ASB issued the No.1 Reporting Standard (RS1) entitled “Operational Status and Financial Review” and accompanied by an Implementation Guidance.4 The Reporting Standard requires directors to prepare an OFR, which sets out their analysis of the business, with a forward-looking orientation. The information
disclosed need to be addressed to the members of the Board, in order to assist them in assessing the strategies adopted by the company and the potential for those strategies to succeed, but are also relevant to other stakeholders.
1.1.3 IASB MD&A System
In view of the regulations on Management Discussion and Analysis in the United States, the United Kingdom, Canada, New Zealand, Germany, Australia, the European Union and many other member organizations, the International Accounting Standards Board convened a meeting to recommend the development of a management disclosure statement. In 2010, IASB issued the “IFRS Practice Statement - Management Commentary”, which is not an IFRS, but provides a broad, non-binding framework for the presentation of the Management Commentary, which relates to financial statements that have been prepared in accordance with International Financial Reporting Standards. The Practice statement states that the Management Commentary (MC) is
“a narrative report that provides a context within which to interpret the financial position, financial performance and cash flows of an entity. It also provides management with an opportunity to explain its objectives and its strategies for achieving those objectives.” (“IFRS Practice Statement,
Management Commentary - A framework for presentation”, IFRS, 2010, p. 5)
However, in spite the Practice Statement sets out the principles, qualitative characteristics and elements of MC that are necessary to provide users of financial reports with useful information, while the form and content may vary by entity. This flexible approach generates a disclosure that is more meaningful, by encouraging entities, which choose to present MC, to discuss those matters that are most relevant to their individual circumstances.
1.2 The Evolution Of Chinese MD&A Disclosure Rules
In comparison to Western countries, Chinese approach to Management Discussion and Analysis is quite recent, in fact, just in 2001, the China Securities Regulatory Commission (CSRC) introduced the MD&A system for the first time. Since then the guidelines for the disclosure of MD&A information have never stopped from being revised and implemented and their evolution is summarized in the following Figure 1.
Figure 1: Timeline of the Management Discussion and Analysis guidelines.
Source: elaborated by the author.
In 2001 the “Information Disclosure Content and Format Guidelines for Companies Offering Securities to Public No. 11 - Prospectus for the Issue of New Shares by Listed Companies” was issued and section XI refers to the Management Discussion and Analysis, setting out which information should be disclosed in this part of the Prospectus. The content should focus on the discussion and analysis of the company's financial status and operating results using year-by-year comparison or other
2001
“Information Disclosure Content and Format Guidelines for Companies
Offering Securities to Public No. 11 - Prospectus
for the Issue of New Shares by Listed
Companies”
2005
“Standards for the Contents and Formats of Information Disclosure by Companies Offering Securities to the Public No. 2 – Contents and Formats of Annual Reports”
2007 “Regulations on Information Disclosure of Listed Companies” 2012 2015
“Standards for the Contents and Formats
of Information Disclosure by Companies Offering
Securities to the Public No. 2 – Contents and Formats
of Annual Reports”
“Working Memorandum on the 2011 Annual Report of Listed Companies-No. 5-Management Requirements for Management Discussion and Analysis”
“Standards for the Contents and Formats of Information Disclosure by Companies Offering Securities to the Public No. 2 – Contents and Formats of
Annual Reports”
2016 2017
“Standards for the Contents and Formats of
Information Disclosure by Companies Offering Securities to the Public No. 2 – Contents and
Formats of Annual Reports” “Standards for the Contents and
Formats of Information Disclosure by Companies Offering Securities to the Public No. 2 – Contents and Formats of
easy-to-understand format. Moreover, any matters that cause significant influence on the issuer's past and future financial status and operating results, not limited to financial aspects, should be discussed and analysed in depth.
The Management Discussion and Analysis shall cover important aspects, such as the company's financial operation status, cash flow situation, major investment and financing and capital expenditure plans and off-balance sheet matters, including, but not limited to the following items:
• Income from main business.
• The short-term financial position of the company based on working capital, focusing on current ratio, quick ratio, accounts receivable turnover rate, inventory turnover rate, etc., assets and liabilities and shareholders' equity, asset quality and asset structure.
• Cash flow from operating activities, investment activities and fundraising activities.
• Significant investments, income, mergers and acquisitions, debt maturity and repayment, including actual occurrences and plans, bank credit lines and usage and major capital expenditures and plans.
• The sale, mortgage, replacement and entrusted operation of assets, major guarantees, litigations, and contingencies and other matters after the disclosure period. (Translated by the author from “关于发布公开发⾏行行证券的公司信息披露露内容
与格式准则第 11 号-上市公司发⾏行行新股招股说明书的通知”, Notice on Issuing the
Information Disclosure Content and Format Guidelines for Companies Offering Securities to Public No. 11 - Prospectus for Issuing New Shares by Listed Companies, CSRC, 10 April 2001, Section 11, Artice 69)
Subsequently, in June 2002, the “Information Disclosure Content and Format Guidelines for Companies Offering Securities to the Public - No. 3 - Content and Format of the Semi-annual Report” also made similar requirements for MD&A; while, in 2005, the “Standards for the Contents and Formats of Information Disclosure by Companies Offering Securities to the Public No. 2 – Contents and Formats of Annual Reports” was revised, providing further detailed requirements for the disclosure of specific information, especially of forward-looking information in the Management Discussion and Analysis section. This guideline considers the Directors’ Report and
MD&A to be the same concept; in fact, section 8 is entitled “Directors’ Report”, but in article 33, as presented below, this report is referred as “discussion and analysis” and also the contents required are the same as those required for the MD&A in previous regulations.
Article 33: The report of the board of directors of the company shall discuss
and analyse the financial report and other necessary statistical data as well as the major events that occurred or will occur during the reporting period to help investors understand their operating results and financial status. [...]Discussion and analysis should not only repeat the content of financial reports, but should focus on the significant issues and uncertainties that are known to cause financial reports to be difficult to show the company's future operating results and financial status, including significant impact on the
reporting period. (Translated by the author from “公开发⾏行行证券的公司信息披
露露内容与格式准则第 2 号-年年度报告的内容与格式”, Standards for the Contents
and Formats of Information Disclosure by Companies Offering Securities to the Public No. 2 – Contents and Formats of Annual Reports, CSRC, 26 December 2005, Section 8, Article 33)
Another significant aspect of this guideline to underline is that the same article mentioned before divides in two main sections the information required for the Directors’ Report, which will become the focal points for the MD&A in future regulations.
The information should be divided into:
1) A review of the entity’s operations during the reporting period and 2) A forecast of the future development of the company.
The first part should outline the overall operating conditions of the company during the reporting period, showing the changes in income and in profit, indicating also the main factors that caused those changes. The company shall summarize the implementation and adjustments of its development strategy and the business plan that have been disclosed in the previous period and explain the status and trends of the macroeconomic
level or external business environment related to the company’s business. Furthermore, this section shall comprehend an analysis of the company's main business and its operating status, showing the composition of the main business income and profit according to the industry, products and regions, disclosing the trends and changes during the reporting period. At the same time, the company shall explain the significant changes occurred year-on-year of the company's major assets and liabilities items and the main influencing factors that produce those changes and disclose the composition of the company's operating activities, investment activities and cash flow generated by financing activities, through the combination of the relevant data of the company’s cash flow statement. Moreover, the firm is encouraged to discuss and analyse important information related to the operations, such as the company's equipment utilization, order acquisition, product sales or backlog, and changes in major technicians. In addition, an analysis of the operation and performance of the company's main subsidiaries and shareholding companies should be presented and, if there is a special purpose entity under the control of the company, the company's control and control rights should be explained, as well as, the benefits that the company can obtain and the risks it bears.
On the other hand, the prospect for the future development of the company should disclose an analysis of the development trend of the industry and the market competition pattern faced by the company, providing a basic judgment on the relevant changes and a detailed analysis of the extent of their possible impact on the company. In this section, the company should also inform investors about the future opportunities and challenges that the business may face, the company's development strategy, new businesses to be developed, the eventual new products and the new projects to be invested. Finally, the firm shall report the capital needs and usage plans to realize the development strategy, the source of funds and the future major capital expenditure plans, as well as all risk factors that may adversely affect the company's future development strategy and business objectives.
In May 2006, the “Information Disclosure Contents and Format Guidelines for Companies Offering Securities to the Public No. 11 – Prospectus for Issuing New Shares by Listed Companies” also increased the requirements for MD&A. In December of the same year, in the "Administrative Measures for Information Disclosure of Listed Companies", MD&A was required to appear as an indispensable piece in the company's interim report and annual report. This is the reason why in February 2007 the CSRC
issued the “Regulations on Information Disclosure of Listed Companies”, where the contents of the annual report are set out and they comprehend:
1) Basic information of the company.
2) Major accounting figures and financial indexes.
3) Company’s stock and bond issuance and changes, number of shares, bonds, shareholders and shareholding information of top 10 shareholders at the end of the reporting period.
4) Information about shareholders with stakes of 5% or above, controlling shareholders and actual controllers.
5) Information about positions, stock holding changes and annual remunerations of directors, supervisors and senior managers.
6) Board of Directors’ report.
7) Management Discussion and Analysis.
8) Major incidents and their influence on the company during the reporting period. 9) Financial reports and full text of audit report.
10) Other items specified by CSRC.
As it can be seen in the list mentioned above, the Regulation divides the annual report in ten sections; among these, sections 6 and 7 refer respectively to the Board of Directors’ Report and to the MD&A, considering the two concepts different one from the other. This distinction appears also in “Measures for the Administration of Information Disclosure of Listed Companies” issued by CSRC in 2009, where article 23 explains the contents that should be disclosed in the annual report, which are the same as those presented by the Regulation of 2007. This time, section 7, the one related to Management Discussion and Analysis, is entitled as “Management's review and performance analysis of the company's operations during the reporting period and the prospects for the company's future development”, reminding of the focal points that MD&A should cover, as the guideline of 2005 set out before.
In September 2012 the “Standards for the Contents and Formats of Information Disclosure by Companies Offering Securities to the Public No. 2 – Contents and Formats of Annual Reports” was revised again. Section 4 of the document, entitled as “Report of the Board of Directors”, states that:
“The report of a company’s Board of Directors shall discuss and analyse the data of financial reports, other necessary statistical data, as well as major matters that occurred in the reporting period or are likely to occur in the future, list relevant matters in the form of year-by-year comparison and list data and other means, in order to help investors know the financial status of the company, its operating results and future changes.”
(Translated by the author from “公开发⾏行行证券的公司信息披露露内容与格式准则第 2 号-年年度报告的内容与格式”, Standards for the Contents and Formats of
Information Disclosure by Companies Offering Securities to the Public No. 2 – Contents and Formats of Annual Reports, Section IV, Article 20)
The disclosure of the information should follow the principle of readability, which means that the language used should be plain, clear and easy to understand, the principle of reliability and the reference data and materials should be based on sufficient evidence; if third-party data and materials are cited, the source should be indicated. Furthermore, the content should have sufficient decision-making relevance, focusing on the implementation of major investment projects, mergers and acquisitions, construction in progress, research and development projects and talent developments during the reporting period, as well as future plans, which will help investors fully understand the company’s future trends. In conducting targeted discussion and analysis of the operating results and financial status, the information disclosed should be fully related to the company’s external environment and internal conditions and the consistency of internal logic should be maintained. In addition, the firm is encouraged to disclose key performance indicators that are sensitive to the performance and the assumptions, calculation methods, selection basis, causes and trends of the indicators should be analysed. Another important principle that is stressed out even more than in 2005 is that the discussion and analysis should not simply repeat the contents of financial reports, but should concentrate on analysing significant operational and financial indicators, focusing on disclosure of substantive content, known important trends and uncertainties.
Article 21 of the guideline states that the company shall disclose matters that have had a significant impact on the reporting period or those that have not had an impact on the reporting period but might have it in the future, including:
• analysis of main business;
• analysis according to the operations of the industry, products or regions; • analysis of the status of assets and liabilities;
• analysis of core competitiveness; • analysis of investment status;
• the special purpose subject controlled by the company.
As far as the “analysis of the main business” is concerned, the firm should explain factors, such as the production and sales volume, the settlement ratio of orders or labour services, that drive the change in business income and, if the relevant data changes by more than 30% year-on-year, the reasons should be explained, as well as, if there is a major change or adjustment in the products or services during the reporting period, the company shall disclose the new products and services that have been provided or will be provided and explain the impact on the operations and performance. Moreover, the situation of the main sales customers should be presented with a disclosure of the proportion of the sales of the company's top 5 customers to the total annual sales, along with the situation of the major suppliers, followed by the data about the proportion of the company's top five suppliers' purchases to the total annual purchases. In addition, this part of the analysis of the main business should comprehend the disclosure of the proportion of the main components of the current year's cost to the total cost, according to the industry or products, with comparable data of the previous year, the explanation of the changes (when more than 30% year-on-year in the reporting period) in the sales expenses, management expenses, financial expenses, income tax and other financial data, the clarification of the purpose, progress and objectives of the R&D project during the reporting period, the illustration of the impact on the future development and the composition of the company's operating activities, investment activities and cash flow generated by financing activities, explaining the eventual changes.
Talking about the “analysis according to the operations of the industry, products or regions”, the company shall explain the composition of the company's main business income and main business profit during the reporting period in relation to its actual situation and, if the business operations of the industry, products or regions account for more than 10% of the company's total operating income or total operating profit, their
operating income, operating costs, gross profit margin should be presented separately and its changes should be analysed.
In the “analysis of the status of assets and liabilities” the firm should report their situation and their changes and, if the change is more than 30% year-on-year, the reasons and impact on the operating results and financial status should be indicated, while in the “analysis of core competitiveness”, if this is seriously affected due to the upgrading of equipment or technology or due to the loss of franchise rights, the company shall analyse the situation in detail and explain the corresponding measures to be taken.
In addition, in the “analysis of investment status”, the situation of external equity investment should be presented, as well as the situation of entrusted wealth management and derivative investment by non-financial companies, the analysis of major subsidiaries and shareholding companies, providing also information about their impact on operations and performance and the company shall further list the total investment amount of the major projects, the total amount of actual investment, the progress of the projects and the income of the non-raised funds invested exceeding 10% of the audited net assets at the end of the previous year.
Finally, in the “special purpose subject controlled by the company” section, the firms shall disclose the special purpose subject’s control and control rights and explain the benefits that the company can obtain and the risks it bears.
On the other hand, article 22 of the guideline focuses the attention on the future development of the company and the factors affecting it, such as:
• The industry competition pattern and development trend, analysing the main advantages and difficulties of the company in combination with the market changes of its main business, the changes in the composition of operating costs and the changes in the market share and explaining the impact of the changes on the company's future operating results.
• The company's development strategy, informing investors about opportunities and challenges from the aspects of industry barriers, core technology substitution or diffusion, industrial chain integration, price competition, cost fluctuations, etc.
• The funding needs for maintaining the current business and completing the investment project and the major capital expenditure plans for the future.
• The major risk factors that may adversely affect the company's future development strategy and business objectives in accordance with its own characteristics and adherence to the principle of relevance and importance, analysing the impact of each risk factor on the company's current and future operating results and explaining the countermeasures that have been or are planned to be taken.
The guideline specifies also some other requirements for the disclosure of the Report of Directors; for example, if the company makes corrections to accounting policies, accounting estimates or major accounting errors, it shall disclose the reasons and impacts of the changes and corrections and companies, that apply both domestic and foreign accounting standards, should specify the circumstances in which the differences arise. In addition, firms are encouraged to disclose their distribution plan of profit and the measures taken to strengthen ecological protection, maintain social security and achieve a sustainable development. All the requirements issued in the guideline revised in 2012 are represented in the following Figure 2.
Figure 2: Scheme of the requirements for the compilation of the MD&A in the “Standards for the Contents and Formats of Information Disclosure by Companies Offering Securities to the Public No. 2 – Contents and Formats of Annual Reports” of 2012.
Source: elaborated by the author.
Even though the “Standards for the Contents and Formats of Information Disclosure by Companies Offering Securities to the Public No. 2 – Contents and Formats of Annual Reports” proposed quite exhaustive requirements for the disclosure of the information in the Report of the Board of Directors, the Shanghai Stock Exchange (SSE) wanted to further improve the quality of MD&A, reflecting the importance that government attached to this part of the annual report and helping investors making investment decisions. For this reason, it promulgated the “Working Memorandum on the 2011 Annual Report of Listed Companies - No. 5 - Requirements for Management Discussion and Analysis”. In the Memorandum the objectives of MD&A and the requirements for its preparation are explained in detail. It defines the Management Discussion and Analysis as a necessary and useful supplement to financial reporting to enhance the effectiveness of disclosure and its main objective is to emphasize the disclosure of forward-looking information.
REPORT OF THE BOARD OF DIRECTORS
PRINCIPLES COMPANY’S BUSINESS ANALYSIS DEVELOPMENT FUTURE
• Reliability • Decision-making
relevance
• The content should be fully related • Disclosure of key performance indicators • Focusing on disclosure of substantive content, known important trends and uncertainties
• Plain, clear and easy to understand language • Industry competition pattern and development trend • The company's development strategy • Business plan • Funding needs • Risks that may be
faced • Analysis of the main
business
• Analysis according to industry, product or regional operation • Analysis of the status
of assets and liabilities • Analysis of core competitiveness • Analysis of investment status • The special purpose
subject controlled by the company OTHER REQUIREMENTS • If the company makes corrections to accounting policies, accounting estimates or major accounting errors it shall disclose the reasons and impacts of the changes and corrections • Profit distribution policy • Social responsibilities
Through the interpretation of the historical data stated in the financial statement, MD&A should present an overview on the operations during the reporting period, providing a summary of the development trend of the company’s business, the strategies elaborated and the company’s response measures, revealing to investors the management evaluation about the past situation in the reporting period and in the adjacent period and the expectations related to future prospects. In this way, MD&A provides a further analysis of relevant matters disclosed in the financial statement with qualitative information and introduces also some non-financial matters. In addition, Management Discussion and Analysis should fully reveal risks to investors, explaining the risk factors and uncertainties faced in the company's operations, providing proactive information, which really reflect the value of the company.
Furthermore, the Memorandum sets out the requirements for the preparation of MD&A, such as providing dynamic information to investors through a detailed interpretation of historical data and uncertainties reflected in the financial report, in order to allow them to properly understand the company’s financial status, its operating results and cash flow from the management’s point of view and to know more about the company’s current situation and future developments, as well as possible risks. In the analysis and discussion of financial information through textual narrative, the company should highlight the most important matters, focusing on why and how they occur and on their potential impact on the business. The preparation of management discussion and analysis should be carried out in combination with the company's specific industry, scale and market, so it cannot be uniform for every company. Moreover, the management discussion and analysis should be concise and clear and the presentation should be objective, accurate and easy for investors to understand. In order to ensure that the discussion and analysis can fully meet the requirements of the annual report guidelines and that the content is true and accurate, without false records, misleading statements or major omissions, the management of the company should preside over and participate in the preparation.
Finally, the Memorandum points out what aspects the company should take more into consideration in the disclosure of the MD&A. For example, in the presentation of the overall operations of the company during the reporting period, if the profit composition or source of profit changes significantly (is 20% higher or lower than in previous period), the company should indicate the specific changes. In addition, the development strategy and business plan that have been realized or implemented should
be presented and the eventual adjustments should be summarized. The situation of major suppliers and customers should also be explained, as well as the changes that have occurred in the asset composition, specifying the reasons of the change and the impact on the company's financial status and operating results. Speaking of operating activities, the company can combine the relevant data of the cash flow statement to explain the composition of the operations, the investment activities and the cash flow generated by financing activities. Furthermore, the situation of main subsidiaries should be presented, focusing on the business nature, major products or services, registered capital, total assets, net assets, net profit and the acquisition and disposal of subsidiaries this year and, when a company has a special purpose entity under its control, it should introduce the company's control methods and control rights and explain the benefits that the company can obtain and the risks it bears.
On the other hand, in the preparation of the “Forward Development Outlook” section, when forecasting or estimating the future operations, the company should illustrate and suggest the possible changes in the methods and assumptions and fully inform the investors of the risk factors, covering short-term and long-term future.
At the end of 2012, to further stress the importance of the presence of MD&A in the annual report of listed companies, the SSE released the “Notice on Listed Companies’ Annual Reports of 2012”, referring to the revision of the “Standards for the Contents and Formats of Information Disclosure by Companies Offering Securities to the Public No. 2 – Contents and Formats of Annual Reports” made by CSRC in the same year. In the Notice, the SSE announces that there will be an after-action check on annual reports, focusing on the non-financial information presented in the Management’s Discussion and Analysis section and inviting media, security service intermediaries and institutional investors to make evaluations on the effectiveness and adequacy of information disclosure.
Subsequently, in 2014, the CSRC issued a new revision of the “Standards for the Contents and Formats of Information Disclosure by Companies Offering Securities to the Public No. 2 – Contents and Formats of Annual Reports”, but without any significant change in the section of the Report of Directors. Although the content of this part of the annual report is basically in line with the nature of MD&A, it has always maintained the name “Report of the Board of Directors”, without explicitly stating “management discussion and analysis”, until the CSRC revised the guideline again in 2015.
In the 2015 revision, in addition to the name change, made in order to highlight that this part of the report is based on the analysis by the management perspective, the content was reduced in some parts, with the purpose of increasing the usefulness of the information for investors and the content of the guideline was reorganized into three parts, which are principles, main business description and future prospects.
Article 26 states an implementation of the principles that should be followed in the disclosure of MD&A, that were previously issued in the revision of the guidelines in 2012. These principles are:
• Reliability of the content.
• Relevancy of the content, because the company should fully consider and respect the investor’s needs and the disclosure should help them to fully understand the company’s future changes. The company should focus on discussing and analysing the implementation of the major investment projects, asset purchases, mergers and acquisitions, construction in progress, research and development projects, personnel training and reserves in the reporting period and future plans.
• The content should be sufficiently related to the company’s operating results and financial status and should fully consider the company’s external operating environment and internal resource conditions, combined with the company’s strategy and marketing management policies, as well as the company’s business characteristics, conducting a targeted discussion and analysis and maintaining logical continuity.
• The key performance indicators used in business management activities, which are determined by the company, according to the industry and its own characteristics should be disclosed and the factors that have high sensitivity to the performance and on which the company has certain control ability should be presented.
• The root cause of the changes in financial data and the possible trends reflected by the data should be fully explained from the business level point of view, with a process of discussion and analysis, instead of a simple repetition of the content of the financial report.
• The statistical data should be consistent and comparable and, if it is necessary they should be adjusted and the company shall disclose the reasons for the change of the caliber and provide the adjusted comparative data of the past year.
• The language should be plain, clear and easy to understand and should follow a template.
In the section related to “main business description”, some changes have been made compared to 2012 version of the guideline, in order to enable users of the report to obtain company-related information more directly and clearly. For example, there is no separation between the analysis of the main business and the analysis according to the operations of the industry, products or regions, but these are grouped all in one single part, named “main business operations”, which should include:
• Income and cost analysis, which provides a breakdown of the industries, products, or regions that account for more than 10% of the company’s operating income or operating profit.
• Cost analysis, where, if the financial data such as sales expenses, management expenses and financial expenses of the company changed significantly during the reporting period, the main driving factors for the change should be explained in combination with the business model and cost structure.
• R&D investment analysis, in which the company shall explain the purpose of the R&D projects carried out during the year, the progress of those project and the objectives to be achieved and that are expected to have an impact on the future development of the company. If the data change significantly from the previous year, the reasons for the change should be indicated.
• Cash flow analysis, which has to be carried out combining the data of the company’s cash flow statement, in order to explain the composition of the operating activities, investment activities and cash flow generated by financing activities and, if there are relevant data changes year-on-year, the company should analyse the main influencing factors.
After the “main business operation” disclosure, the firm should discuss if the material changes in the profit structure or profit sources of the current period are
derived from non-primary business operations, including, but not limited to investment income, gains and losses from changes in fair value, impairment of assets and non-operating income and expenses, etc., the amount involved and the reasons for formation and sustainability. Furthermore, the status of assets and liabilities should be presented, with an analysis of the financial indicators of various operational capabilities and solvency. Also the investment status should be discussed, evaluating the major equity investments acquired during the reporting period, the major non-equity investments and the initial investment cost, source of funds, purchase or sale of financial assets, such as domestic and foreign stocks, funds, bonds, trust products, futures, financial derivatives and other financial assets held at fair value during the reporting period and the investment income and changes in fair value. In addition, the company should briefly analyse the impact of major assets and equity sales on the company’s business continuity and management stability, explain in detail the main business, registered capital, total assets, net assets, net profit of the main subsidiaries and the status of obtaining and disposing the subsidiaries during the year, including the methods of acquisition and disposal and the impact on the overall production and operation of the company. Finally, when a company has a structured entity under its control, it should introduce the entity's control and control rights and explain the benefits that the company can obtain and the risks it bears and should also illustrate the relevant situation in which the structured entity provides finances, goods or services to support its main business activities.
The third section of the Management Discussion and Analysis is represented by the future prospects and should include the following information:
• Industry structure and trends. The company should introduce the development trend of the macroeconomic level or industry environment level associated with the business, as well as the company's industry status or regional market position, in light of its business scale, business area, product category and competitors. Moreover, the main industry advantages and difficulties, in combination with market changes in the main business, changes in operating costs, changes in market share should be exposed and the impact of changes on the company's future operating performance and profitability should be explained.
• The company's development strategy. The firm should remind investors of future development opportunities and challenges, in terms of industry barriers,
core technology substitution or diffusion, industrial chain integration, price competition, cost fluctuations, etc., disclosing the development strategy, the new businesses to be developed and the new developments on products, new projects to be invested, etc. If the company has multiple businesses, it should also explain the development plan of each business. The disclosure of the future development strategy should be based on the issues that investors pay more attention to, as well as the specific environment faced by the company at this stage, the industry in which the company is located and the characteristics of the business it engages in. The focus of the analysis should be on whether the company’s main business model will undergo major changes, or on new technologies, new product development plans, capacity expansion, asset acquisition and other major investment plans, which are targeted to help investors understand the company’s future development direction and business style.
• Business plan. The company should review and summarize the progress of the development strategy and business plan disclosed in the previous period during the reporting period and explain the situation that has not reached the target. If the actual operating results of the company are lower or higher than the publicly disclosed earnings forecast for more than 20% of the current year, the reasons for the difference shall be explained in terms of income, cost, expenses and tax burden. In addition, the issuer shall disclose the business plan for the next year, including (but not limited to) income, expenses, cost plans and business objectives for the next year and the strategies and actions to be taken to achieve the above business objectives. The company should also state that the business plan does not constitute a company’s performance commitment to investors, prompting investors to maintain sufficient risk awareness. Besides, the issuer shall indicate the capital requirements needed to maintain the current business and to complete the investment projects under construction and shall briefly explain the source, cost and use of the investment funds involved in the business plan.
• Risks that may be faced. The company shall, according to its own characteristics, follow the principle of relevance and importance to disclose risk factors that may adversely affect the future development strategy and business objectives. The content of the disclosure should be sufficient, accurate and
specific, as well as the quantitative impact, that should be taken into consideration to analyse the impact of each risk factor on the company’s current and future operating results or planned response measures. For the new risk factors of the current year, compared with the previous year, the company should evaluate the reasons for their occurrence, the impact on the operations and the measures and effects that have been taken or proposed. If the analysis indicates that the relevant change trend has been, is or will have a significant impact on the company’s financial status and operating results, the issuer should provide a management strategy with a basic judgment on the relevant changes and should quantitatively analyse the degree of impact on the company.
It can be noticed that, in comparison with the guideline of 2012, in this version the description of the non-standard audit opinion report, the impact of changes in accounting policies, the description of related matters of the profit distribution plan and the description of social responsibility have been removed. In order to explain more clearly the requirements for the disclosure of the MD&A, the scheme in Figure 3 is provided.
Figure 3: Scheme of the requirements for the compilation of the MD&A in the “Standards for the Contents and Formats of Information Disclosure by Companies Offering Securities to the Public No. 2 – Contents and Formats of Annual Reports” of 2015.
Source: elaborated by the author.
In 2016, the China Securities regulatory Commission announced that the “Standards for the Contents and Formats of Information Disclosure by Companies Offering Securities to the Public No. 2 – Contents and Formats of Annual Reports” was revised again, but without any significant change in the Management Discussion and Analysis section and the same thing happened in the revision of 2017. Therefore, it can be assumed that the disclosure of Management Discussion and Analysis in China had reached its maturity in 2015 and did not need further corrections or implementation. On the other hand, as it will be explained in the next chapter, a lot of scholars in their researches have underlined that the Chinese MD&A disclosure system still has some flaws and has definitely room for improvement.
MANAGEMENT DISCUSSION AND
ANALYSIS
PRINCIPLES MAIN BUSINESS DESCRIPTION PROSPECTS FUTURE
• Reliability • Relevancy
• Content related to the company's operating results and financial status • Disclosure of key
performance indicators • Discussion and analysis of
the cause of the changes in financial data and the possible trends • Consistency and
comparability of the statistical data • Plain, clear and easy to
understand language
• Main business operation • Material changes in the profit
structure or profit sources • Status of assets and liabilities • Investment status
• Major assets and equity sales • Major holding companies • The situation of structured entities controlled by the company
• Industry structure and trends • The company's development
strategy • Business plan
CHAPTER 2
LITERATURE REVIEW
The introduction of Management Discussion and Analysis in China, as it is explained in the first part of this work, is quite recent, if we compare it to the long history of MD&A in Western countries, such as the US and UK. In fact, the US SEC in 1968 required a discussion and analysis in the registration statements for the first time, while the CSRC, just in 2001 issued the “Information Disclosure Content and Format Guidelines for Companies Offering Public Offerings No. 11 - Prospectus for Issuing New Shares by Listed Companies”, introducing the MD&A in the preparation of the Prospectus. For this reason, the status of foreign research regarding this argument has a history of approximately 50 years, it is broad and exhaustive and has also helped the process of development of MD&A information disclosure, providing quality evaluations with both theoretical and empirical approaches, proving the usefulness of the discussion and analysis and suggesting improvement methods.
On the other hand, Chinese studies are still in their infancy, but they are growing, following the evolvements of the regulations and guidelines on MD&A information disclosure and contributing to their progress. This chapter will focus on the publications of Chinese authors about the situation of MD&A in their home country, analysing both theoretical and empirical studies, with the aim to provide a complete overview of the status and results of domestic research.
2.1 Theoretical Research
2.1.1 Research On The Quality Of Disclosure
As soon as Chinese scholars recognized the importance of MD&A, they started to conduct researches on the argument, evaluating the quality of the information reported and trying to suggest new methods for the estimation and solutions to overcome weaknesses and to improve the standards of the disclosure, because “paying attention to MD&A disclosure quality is not only an inherent requirement for the development of China's financial report, but also an inevitable trend of
