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Form 10-K is an annual report sent to the Securities and Exchange Commission within a specific period after the end of the financial period year, disclosing information about material facts relating to the company. The preparation of a report on Form 10-K usually requires the joint efforts of the managers of the firm, its lawyers, and auditors. Public companies must submit financial statements and other disclosures to the SEC on a quarterly basis. The company’s reports for the first, second, and third quarters of a financial year are called reports in the 10-Q form, and the annual report is called reports in the 10-K form. The Management Discussion and Analysis (MD&A) is an essential part of the annual Form 10-K due to it addressing a number of critical points regarding a company’s management issues. The given section must include information on executives analyzing the overall performance of the company by including key reports on risk, compliance, and future projects and goals.
Reports on forms 10-Q and 10-K include the financial statements of the company, as well as additional information that goes far beyond the scope of the financial statements. If the prompt presentation of financial statements does not cause difficulties for companies, the disclosure of additional information takes considerable time. Paragraphs are general SEC requirements that apply to all public companies. Companies in certain industries, such as the insurance and banking sectors, should disclose significantly more additional information in the notes to the financial statements. Information on certain types of activities is also disclosed, for example, the granting of stock options, business combinations, pension plans, and the use of variable participation enterprises (United States Security and Exchange Commission, n.d.). In addition to the points already noted, Form 10-Q should disclose the unregistered sale of equity securities and the use of proceeds from this sale, as well as all cases of default on senior securities.
The annual report on Form 10-K is submitted by American companies to the Securities and Exchange Commission (SEC) and reflects the current financial condition. The preparation of this document is mandatory for all, without exception, businesses in the United States. This rule applies to all companies regardless of turnover, legal form, number of founders, category of shares, and other securities. Corporations whose assets exceed $10 million and have more than 500 shareholders, in addition to annual reporting, also provide interim information on their activities. The frequency of the provision of information is determined by the current Code of Federal Rules. The statements are generated on a 10-Q form on a quarterly basis with a cumulative total, information for the last three months of the financial period is included in the annual final document in form 10-K. Such a system is the most convenient and eliminates duplication of information.
Ford company’s Form 10-K follows the strict format of starting with an overview and continuing with an essential report highlighting several fiscal periods. It is stated that a Form 10-K needs to include critical information on the company’s performance as well as risk factors (Hargrave, 2019). The given section is allocated to item 7, where results of the operation are analyzed by the executives for the years 2016 and 2017. The company outlines the automotive segment and financial services segment from all other and special items (United States Security and Exchange Commission, 2017). These points are followed up by a thorough report on taxes and liquidity capital resources, where the corporation’s financial data is also delivered. Another important point of Form 10-K is credit ratings because it is highly relevant for the future estimations made in the form. The future projections are made for the year 2018 due to the illustrated Form 10-K being for 2017 (United States Security and Exchange Commission, 2017). The goal analysis begins with major external factor assumptions, where various risks and compliance factors are also included. The section makes detailed estimations for the production volumes for the year 2018. Form 10-K’s MD&A section is concluded by analysis on critical accounting estimates as well as accounting standards that were issued but not yet adopted.
Apple’s Form 10-K also begins with the overview and highlights segment, where each fiscal period highlights are given. This is followed up by product performance data specified for each product line, such as iPhone or Mac (United States Security and Exchange Commission, 2018). Each product includes data on the unit sales and net sales with the comparison for three consecutive years. The next point revolves around the management’s analysis of operating performance for each market segment. This section includes the Americas, Europe, Greater China, Japan, and the rest of Asia Pacific (United States Security and Exchange Commission, 2018). The following section is on taxes and liquidity capital resources, which also involves executives analyzing the critical accounting policies and future estimates. The company’s Form 10-K dedicates a large portion of MD&A to revenue recognition, where risk and compliance factors are discussed.
Both companies’ Form 10-K follows a strict guideline structure of beginning with an overview and highlighting critical moments for the current and previous years. In addition, both forms include mandatory information on risks, compliance, and future projections. The risks and compliance are reflected in taxes and liquidity sections, whereas future projections are mostly included in the last part of MD&A. The main difference in the MD&A segments of these two companies is based on the fact that they occupy different industries. Apple possesses a number specialized number of products, therefore, the executives present financial data for each one separately. However, the Ford company primarily delivers the analysis on two major products, which include the automotive industry and financial services. In addition, Apple discusses each global market segment unit separately by outlining each territory, whereas Ford does not categorize the overall market according to the location.
In both cases, the financial annual report is prepared along with a similar document for shareholders before the general meeting and election of the board of directors. The executives of individual companies prefer to combine both types of reports in one in the form of 10-K. Moreover, in accordance with the law, they are obliged to provide a copy of this document to the founders and owners of the share at their request (Bodnaruk, Loughran, and McDonald, 2015). Significant changes in the company, a change of management, or a declaration of bankruptcy are reflected in a special report in form 8K.
The companies are consistent with the mandatory requirements for the MD&A section, because essential information on risks, compliance, future estimations is delivered. The major requirement is manifested in the fact that executives provide their analysis and discussion on the overall company’s performance, which is achieved by both Ford and Apple. Therefore, it is safe to state that the mentioned companies do not fail to adhere to the requirements. However, it is important to note that the information categorization format of delivering the analysis is different due to the illustrated companies occupying different industries.
In addition, it is critical to understand that data on the state of affairs in American companies are not confidential and are posted on the official website of the Securities and Exchange Commission. This information is collected, processed, and stored in the system. Federal law, in addition, requires owners of corporations and firms to post an annual report on the company’s web pages in the public domain. Such a system allows the regulatory body, the Securities Commission, to quickly analyze the current situation and identify market development trends. This kind of research is the basis for making effective decisions in this area and has a significant impact on the formation of the state economic policy. The annual reporting of the company in the form of 10-K is a fairly large document, objectively reflecting all aspects of its activities. The annual report in the form of 10-K provides the state authorities and other interested parties with the most complete information about the state of affairs in the company. This allows you to timely monitor negative and positive trends in the economy and makes informed decisions. Maximum openness of information and publication of reports on the Internet minimizes the possibility of manipulating documents in order to hide the true state of affairs.
Risk management is an integral and important element of the method of project financing of investments, based on the distribution of risks among the many participants involved in the investment process. This issue is particularly relevant when financing innovative projects that are classified as the highest risk for investment (McNeil, Frey, and Embrechts. 2015). Features of innovative projects as investment objects are the need to attract relatively large amounts of investment resources. It also includes high investment risks, the long investment process, the need for a thorough study of the investment project, coordination of interests and distribution of areas of activity and responsibility of all its participants, and the need to form various financing schemes depending on the types of innovations, stages of the investment project and the scope of its implementation. Taking into account the diversity of innovations, the uniqueness of combinations of their various properties, it should be noted that these features have their own specifics for different types of innovations, taking into account the scope of their application.
Managing the risks associated with introducing and promoting innovation on the market is quite difficult, especially given the high degree of uncertainty. Nevertheless, the analysis of innovative risks and their systematization can provide tools for risk management. Risks of project financing and building a risk management model for project financing of innovations involves, on the one hand, risk analysis of project financing as a specific method of financing investment projects, and on the other, an analysis of risks of innovation financing. The identification and identification of risks involve the systematic identification and classification of events that could adversely affect the project risk classification. Risk analysis is the identification of risk factors and assessment of their significance. Risk assessment is the quantitative or qualitative determination of the magnitude and degree of risk.
Financial losses, revocation of licenses, criminal liability of managers, loss of business reputation – all this does not solely depend on whether the law requires the organization to build an internal control system to prevent violations or not. The compliance function is universal and extremely important for managers interested in the sustainable long-term development of the company and understanding the real risk situation (Sadiq and Governatori. 2015). In addition, from the point of view of international compliance regulation, the relevant areas of compliance are the regulation of business practices. One of the main goals is to protect the interests of consumers, counteract financial crimes, and international practice, this area of compliance includes transactions using insider information, market manipulation. It should be noted that compliance regulation is not an initiative of individual countries, but a global international process that has certain interstate goals and a wide range of protected entities. Stability of the financial system and prevention of financial crisis, default on obligations. All these requirements and approaches must be known in order to build a compliance function that can be successfully applied to any field of legislation, the risks of violation in which and the application of consequences are most relevant for a particular organization. It should be noted that organizations when building a compliance system are increasingly guided by the best practices and international standards for managing compliance risks.
In conclusion, it is important to note that the MD&A section of Form 10-K is a critical section of the report, where the executive’s outlook is delivered. It needs to include essential information on the overall performance of the company. In addition, there needs to be data on risks, compliance, and future goals. The mentioned examples of Ford and Apple give an outstanding illustration of the fact that both companies strictly adhere to the requirements. However, there are delivery style differences regarding the separation of the products, global market segments, and industries. Ford divides its report to the automotive industry and financial service industry, whereas Apple presents its analysis by categorizing its products and global markets.
Bodnaruk, Andriy, Tim Loughran, and Bill McDonald. “Using 10-K Text to Gauge Financial Constraints.” Journal of Financial and Quantitative Analysis 50, no. 4 (2015): 623-646.
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Hargrave, Marshall. 2019. “Management Discussion and Analysis – MD&A.” Investopedia. Web.
McNeil, Alexander J., Rudiger Frey, and Paul Embrechts. 2015. Quantitative Risk Management: Concepts, Techniques and Tools. Princeton: Princeton University Press.
Sadiq, Shazia, and Guido Governatori. 2015. “Managing Regulatory Compliance in Business Processes.” In Handbook on Business Process Management 2, edited by Jan vom Brocke and Michael Rosemann, 265-288. Berlin: Springer.
United States Security and Exchange Commission. 2017. Ford Motor Company. No. 1-3950. Web.
United States Security and Exchange Commission. 2018. Apple Inc. No. 001-36743. Web.
United States Security and Exchange Commission. Form 10-K. No. 3235-0063. Web.