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MD&A and Financial Disclosure Considerations For 2022

For the first fiscal year ending on or after August 9, 2021, public firms must comply with revisions to the regulations regulating Management's Discussion and Analysis (MD&A) of Financial Condition and Results of Operations and associated financial disclosures. As a result, most calendar-year-end corporations will include the modified MD&A disclosures for the first time in their annual reports on Form 10-K and Form 20-F for the fiscal year ended December 31, 2021.

MD&A – Main Objective

Amended Item 303(a) of Regulation S-K adds a new disclosure requirement to describe the goal of MD&A disclosure. This new disclosure requirement includes long-standing SEC advice from past interpretative releases as well as information previously included in the instructions to Item 303. The following major details are included in this statement of the MD&A's objective:

  • MD&A should include valuable information relevant to an appraisal of the company's financial position and results of operations, such as an assessment of the quantities and predictability of cash flows from operations and from outside sources.

  • It should strengthen important events and uncertainties known to management that are reasonably expected to cause reported financial information to be indicative of future operational performance or financial condition. Furthermore, it should include both short and long-term prospects which allow investors to see the firm "through management's eyes."

Significant Changes in MD&A Requirements

  • Disclosure of Reasons Underlying Material Changes in Line Items

The SEC has revised the requirement to include a discussion of the underlying reasons for major changes in line items of a company's financial statements in a narrative explanation of the causes of such changes. The SEC stated that this adjustment was made to stress the importance of a meaningful examination of the quantitative and qualitative factors underpinning major changes in line items from year to year, rather than a recitation of year-over-year (YoY) variations in reported results.

  • Capital Resources and Liquidity

The SEC has changed the obligation to address major commitments for "capital expenditures" to include disclosure of "cash requirements," which includes commitments for capital expenditures. The modified regulation also requires a review of the company's capacity to create and collect enough cash to satisfy its obligations, as well as its cash strategies in the short and long term (beyond the next 12 months).

  • Contractual Agreements Table

The SEC repealed the requirement that corporations report their known contractual commitments in a tabular format because it frequently duplicated information provided in financial statements. The SEC also stated that it did not believe the move would result in a meaningful loss of information because firms are still obliged to incorporate known contractual and other commitments into the larger discussion of their liquidity and cash requirements.

  • Net Sales or Revenues

The SEC codified guidance in MD&A Interpretive Release to require companies to discuss the extent to which material changes in net sales or revenue are attributable to price changes, changes in the volume of goods or services sold, or the introduction of new products or services in the Results of Operations.

Global Deals – YoY deal trends

Global merger and acquisition activity in 2021 quickly reached pre-pandemic levels and nearly matched 2015 and 2007 peaks (see figure below). Mergers and acquisitions are expected to rise more in the next year. With easy access to cash, low-interest rates, and a strengthening global economy, dealmakers worldwide announced $5.1 trillion in MD&A deals in 2021, an increase from $3.8 trillion in 2020 and the highest level since 2015.

The deal market in the United States was exceptionally active, accounting for $2.9 trillion in transactions in 2021, up 55% from $1.9 trillion in 2020, when the value of reported U.S. agreements declined by 18%. In 2021, the United States accounted for about 60% of all global agreements, up from less than 50% in 2020.

Deal values climbed to new highs in 2021 as well. Looking ahead, more than 80% of executives expect values in their businesses to climb higher in 2022. Despite rising values, industry executives decided to continue making acquisitions in 2022.

Source: KPMG

MD&A developments - 2022

MD&A patterns in 2022 are anticipated to be influenced by a mix of macroeconomic and microeconomic variables. High values (61%), economic determinants such as general liquidity (56%), tough competition for a limited number of highly valued targets (55%), and supply chain issues are the ones CEOs predict to have the biggest influence on MD&A transaction activity (52%).

More than half of CEOs will seek to purchase complete firms to diversify their commercial portfolios. According to CEOs, about 60% want to have access to new goods, services, and technology.


Due to high valuations, transaction complexity, and rivalry for high-quality assets, 2022 will provide several possibilities as well as rising obstacles for dealmakers. Clearly defining objective characteristics as part of an MD&A strategy will assist in filtering the vast amount of offers. Outlining the restrictions on an early appraisal of prospects, such as necessary diligence, resource availability, and capital sources help position acquirers to pursue opportunities within their capabilities rather than being caught up in the deal frenzy.

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