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Right now, accounting teams at countess corporations across the country are wrapping up "the back of the books" -the financial section of their companies' or clients' annual reports.
Management's discussion and analysis (MD&A) is arguably the most read and most important component of the financial section. Nevertheless, in a corporate world that sings anthems to change and continuous improvement, the MD&A stands rigid.
Investors, both professional and individual, have criticized the MD&A for years. A common complaint: Many MD&As drone on with numbers already presented in financial statements, providing little true analysis or explanation for changes in corporate performance.
When reasons are cited, they are often superficial: "Revenues increased in the Consumer Product Group largely because of higher rates of our ... brand," with no explanation for the brand's performance. The impact of cost-reduction programs or special marketing efforts often gets little attention.
The SEC has acknowledged the MD&A problem indirectly. In 1996, the SEC began a "plain English" campaign reflecting Chairman Arthur Levitt's drive to improve financial documents. In January 1997, the Office of Investor Education and Assistance issued "A Plain English Handbook" in draft form. (A date has not been set for the distribution of a final version.) While initially the SEC focused on prospectuses, the campaign is sure to broaden.
The SEC's handbook notes that plain English writing does not mean...