 Hello and welcome to the session in which we will discuss attestation engagement on management discussion and analysis for short MD&A. Now this engagement is part of the clarifying standard on the statements, on standards for attestation engagement. And management discussion and analysis is one of the subject matter that we can report on. We could have three level of service, examination, review and agreed upon procedures. For management discussion and analysis we can conduct an examination, we can also conduct a review. And for an easy way to remember why do we conduct an examination and a review, to think of management discussion and analysis as part of the historical financial statements. Think of them as part of the financial statement, why? Because MD&A is part of the annual report and the annual report is part of the historical financial statement or the historical financial statement is part of the annual report. Just like pro forma financial information we can carry on an examination and we can carry a review. Why? Because also those are part of the historical. When we perform pro forma we look at the historical and make some adjustments. Same thing with MD&A, it's based on historical financial statements. So maybe this is an easy way to remember. Now notice what I want you to notice is this. You can perform examination on practically everything and you're going to see examination of SOC, it's going to be also yes. So for an examination we can do practically everything. Just an easy way to remember. Now what's MD&A? What's management discussion and analysis? We looked at in a separate recording, we talked about MD&A but let's do a quick review. Once again it's part of the annual report 10K and because of that it's an easy way for you to remember it could be an examination or a review. Why? Because we are dealing with historical financial statement by the way it's mandated by the SEC to have MD&A. But what is it? It's basically management telling users about themselves in their own words. Now they're narrating their story. They're using the numbers from the financial statements but they are telling you the story. It's a little bit flexible on how you tell the story. However the numbers has to be derived from the financial statement. They're simply put they're explaining the numbers, explaining themselves. They could have opinion, they could have some soft data, they could have estimates, they could have risks. But everything has to be derived and aligned with the historical financial statements. For MD&A there are three aspects of the report and we have to talk about. Basically as required by the SEC whether those trends are favorable or unfavorable. Liquidity and capital resources simply put they need to talk about their cash flows and their long term assets. They need to discuss changes in financial condition. And basically what discussion is they just talk about what do they think what's happening to their financial condition. And they need to discuss the results of the operation which is profitability. And the best way is to take a look at an MD&A of your favorite company. Look at their annual report and they will have an MD&A. Now the MD&A may also discuss other things like inflation, changing prices, critical accounting policies, many other things. Such for example these days companies will discuss COVID and the risk of COVID on their business and any various risks. The best way is to look at an actual MD&A just to get a feeling and choose your favorite company whether it's Amazon, Apple or any other company. Before we proceed any further I have a public announcement about my company farhatlectures.com Farhat accounting lectures is a supplemental educational tool that's going to help you with your CPA exam preparation as well as your accounting courses. My CPA material is aligned with your CPA review course such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions as well as exercises. Go ahead, start your free trial today, no obligation, no credit card required. Now from an attestation perspective we have to understand that the auditor must have audited the financial statement for the most recent period to issue either an examination report or a review. So the auditor will be engaged to issue either an examination or a review. What is an examination? What is a review? We should know this by now if you're following my attestation engagement lectures. Examination is to express a positive opinion. What is a positive opinion? The positive opinion is the highest level of opinion. They're basically auditing the MD&A. What do they say in a positive opinion? Well, they express a positive opinion whether MD&A include the elements required by the SEC. What are the elements required by the SEC? I just showed you on the prior slide. The financial condition, liquidity, capital resources, discussion of changes in financial conditions and results of operation. Simply put, are we saying they do include a positive opinion? They also discuss that historical amount accurately derived from the financial statements. That's important and I mentioned this implicitly when I was discussing MD&A. All the figures mentioned in the MD&A report has to be derived from the financial statements because the MD&A is talking about the company's performance. The company's performance is reflected in the financial statement. So if your sales increase by 10% from year one to year two, you cannot say in the MD&A that sales increase by 15 because that's not derived from the financial statements. Also, you have to express a positive opinion that the underlying information and assumption provide a reasonable basis for the disclosure within MD&A. So all the assumptions, all the information that you are mentioning in MD&A provide a reasonable basis for the disclosure. So whatever you are saying are correct or accurate in the sense they are reasonable. Now let's talk about a review. A review express a negative opinion, a negative assurance as to whether there is a reason to believe or nothing came to our attention that what? Well, negative assurance basically saying nothing came to our attention to indicate they did not include. The MD&A does not include the elements required by the SEC. In an examination, you would provide a positive assurance that they did include them. In a review, you would say nothing came to my attention, they did not include them. About whether the amount listed are accurately derived from the financial statements, you would say we don't have a reason to believe that the amount not accurately derived. In an examination, we would say the historical amount accurately derived from the financial statement. In a review, we would say we have no reason to believe they are not. Same concept for the underlying information and assumption. We would say the underlying information and assumption, we're not aware that they don't provide reasonable basis for the disclosure. So this is what negative assurance is. So notice I put them side by side to kind of show you in a positive assurance, you're saying that they include them. The amount are derived from the financial statements and the underlying assumptions provide a reasonable basis for the disclosure. In a review, discussing all those elements, but you're saying you are not aware that they did not include them. You don't say they include them, you say we're not aware. So just make sure you know the difference how to express a negative review. There are four assumptions that we need to be aware of under examination when we are dealing with MD&A. The first one is occurrence. And what is the assertion of occurrence? It means the event that they mentioned in the MD&A actually occurred. That's what we are concerned about. Whatever they mentioned that it actually occurred. Completeness of the explanation. When they explain a topic, you want to make sure description or the event that they are describing is complete. They're not keeping stuff out that could be misleading. That they complete the description about their trend in revenues, their trend in cash flows. Consistency with the financial statement. Basically the amounts are derived from the historical financial statement. Well, we have to basically examine this assertion and amount reported are accurately derived from the financial statement. And the fourth is presentation and disclosure. Basically the information in MD&A is properly classified and described. Whatever that classification is, it's under the proper category. So the presentation and the disclosure is properly there. Now the best way to look at this is to look at a report just to see what a report for MD&A would look like. What should you do now? Go to FARHAP lectures and work MCQs that's going to help you understand this concept better. You might have a question or two about attestation engagement and who knows, it might be about MD&A. In my opinion those are easy questions. Don't lose points over them. Good luck, study hard and of course stay safe.