Management Discussion and Analysis: An Examination of The Tensions

Management discussion and analysis (MDA) is required disclosure in annual reports of companies under the jurisdiction of the Securities and Exchange Commission (SEC) and addresses liquidity, capaital resources and results of operations. The objective of this study was to assess the tensions associated with MDA by investigating and explaining forces and group interests that have affected the evolution of MDA standards over time. The historical progression provides an example of the impact conflicting interests have on standard setting and standards development. Actions by various protagonists have influenced the development of MDA standards. The protagonists are categorized as the accountants, encompassing the large accounting firms and the American Institute of Certified Public Accountants (AICPA); the regulators, which includes both the Congress and the SEC; and the registrants, which are the companies that are required to file with the SEC. These standards and actions comprise the data that are to be analysed. The political economy of accounting (PEA) provides the primary theory for this analysis. The evolution of MDA standards is one of many socially constructed events rich in opportunity for accomplishing the PEA goals of accounting research. However, other theories consistent with a PEA framework are useful and included in the analysis for explaining events and providing a basis for understanding the conflicts and struggles associated with MDA standards development. These theories include regulated and free-market controversies, disclosure and standard setting in a regulated environment. Tensions that influenced the histroical unfolding of MDA standards result from conflict of self interest among various social protagonists, and between those self interests and public interest. Critical analysis of MDA has highlighted the importance of corporate dominance and has also emphasized the interactions of the state, as represented by elected officials and regulatory bodies, with corporations and accounting standards. Furtherance of self interests and political processes have reoccurred throughout the creation of MDA standards. Although the conflict and tension has been consistent and will likely continue unabated, self interests have been sufficiently strong to influence MDA standards.