All New Disclosures should appear in the Management Discussion and Analysis Statement Presented by: Carrie Chiu ( ) Erica Tsang ( ) Sharon Cheung ( ) Danny Tse ( )

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 MDA Discuss: financial condition changes in financial condition result of operations known 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 countries compulsory component e.g. Australia, Japan, the USA guideline e.g the USA: SEC Regulation S-K

Background on MDA (Con t) MDA in Hong Kong voluntary disclosures no guideline may be disclosed in Chairman s Report may have other titles e.g. Corporate Governance prepared by management & accountants

Disclosure Requirements in the US Liquidity Capital Resources Results of Operations

Disclosure Requirements in the US (Con t) Liquidity know trends & other factors material affects liquidity e.g. short-term, long-term needs indicators of liquidity: cash

Disclosure Requirements in the US (Con t) Capital Resources commitments for capital expenditures sources of financing know trends in capital resources changes between debt, equity, off- balance sheet financing

Disclosure Requirements in the US (Con t) Results of Operations significant components of revenues & expenses material nonrecurring events/ trends/ uncertainties affect the income e.g. turnover, gross profit

Definition of All New Disclosures Disclosures no standard and regulations depends on the company any information e.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 uncertainties helpful 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 information raise the transparency of the company facilitates the development of stock market

Advantages of MDA (Con t) Better assessment of the company non-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 information discloses significant & non-significant information e.g. employment benefit cannot help decision making cannot show clear and concise picture

Information overload relevant, in great details, much supply important, 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) redundancy cannot help decision making cannot show clear and concise picture

Cost ineffective monetary basis: hires staff to analyze irrelevant and redundant information time basis: disrupts normal daily business operation Disadvantages of All New Disclosures (Con t)

Decline in competitive advantage discloses operations to competitors follows suits by competitors Disadvantages of All New Disclosures (Con t) affects service/product differentiation decreases 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 MDA e.g. risk factors relating to specific company impact of technology development to the company industry development build up confidence of the investors improve corporate governance in H.K. maintain H.K. as an international financial center

The End