 this session, this is Professor Farhad in which we will discuss management discussion or analysis, also known as MDNA. What do you need to know about the management discussion and analysis? Well, it's part of the annual report, part of the 10K. Also, the management discussion and analysis is mandated by the SEC, so you have to prepare an MDNA report, management discussion and analysis. So, what is it? What is that report? Well, let's just look at the terms management, discussion and analysis. It's explicitly tells you what it is. It's the management discussing and analyzing the result. It's management telling us about themselves in their own word. So, simply put, this is not an objective. They're talking about themselves. And remember, when someone talk about themselves, they cannot be 100% objective. They're basically, they narrate their story. They'll tell us what their company looks like, what product do they do, what their cash flow looks like. We're going to see exactly what they talk about. So, there's a lot of flexibility here in what they can say. Now, they cannot lie, obviously. They cannot bend the truth or exaggerate, but there's some flexibility here. Simply put, they're explaining the results. They can have an opinion. They can have some soft data. They can have an estimates. And definitely, they have to talk about the risks, their business risks. Now, bear in mind, the auditor take a close look at this MDNA. And in the auditing class, we talk about exactly what they look for, how do they use it, so on and so forth. But, to start to take a look at the MDNA more specifically, it covers three aspects of the company. And it will discuss those aspects in favourable, as well as if there's any unfavourable trends. The first one is liquidity, which is simply put, they discuss their cash flows, their capital resources, long-term assets, whether it's tangible or intangibles, and they discuss results of operation, the profitability of the company. Are these the only three things? Absolutely not. They can also discuss inflation, changing prices. They discuss critical accounting policies and estimates. Again, they discuss a lot of risks. For example, companies recently, they've been focusing on COVID. They need to tell you how COVID is affecting the company, how COVID is exposing them to the risk. And to illustrate this concept, I believe PepsiCo will be a good example in looking at their MDNA, just to get a good idea, what does it look like, and exactly what is discussed, what's being discussed in this report. Before we look at PepsiCo report, most likely you are a student or a CPA candidate. That's why you are watching. I'm glad you're welcome. You have arrived. I want you to go a step further. Go to farhatlectures.com and take a look at my material where I have additional lectures, resources, multiple choice, true, false, exercises that's going to help you do better in your class or on the CPA exam. I don't replace your CPA review course. I am a useful addition. If you have not connected with me only then, please do so. Like this recording, share it with other connect with me on other social media as well. This is the annual report for PepsiCo for 2021. And we're going to be focusing on item seven, which is management discussion and analysis. Now, after you view this, I strongly encourage you to take a look at the management discussion and analysis of your own favorite company. You might like Tesla. You might like like Amazon. You might like Apple. I chose PepsiCo because many people can relate to PepsiCo because most likely you drink soda, although I'm not a drinker of soda. Not that I don't drink, but it's not as often maybe as other people. But the point I want you to see is this. Notice it goes from page 29 to page 114. And I would say that's a long, that's a long MDNA. It doesn't mean all MDNA are this long, but it happens to be because of the nature of your business. Now, whether it's three pages or 30 pages or in this situation, quite a bit, a little bit less than 100 pages, around 80, 85 pages, it doesn't make a difference. So let's take a look a little bit in details and look at some examples. Now, if I am scrolling a lot, obviously you can download this and view it yourself. But this is basically item seven, management, discussion and analysis. And they tell you exactly what they're going to be covering. Executive overview. They're going to look at their operation, other relationship, our business risks. Then they're going to discuss the financial results, the financial results of operation, results of operation by division. Remember in the prior session, or at some point, we looked at the segment reporting about the Europe, the Middle Eastern, the Latin segment, so on and so forth. Well, they discuss more about it here. Results of operation of other consolidated results, non-gap measures, critical accounting policies and estimates. Remember I told you they do that? Revenue recognition, goodwill, intangible, income taxes, pension and retiree medical plans. It doesn't mean other companies, they do the same thing, but this is what PepsiCo is covering. This is what PepsiCo is covering. Consolidated statement of income. Again, they show you the statement of income, but consolidated and maybe a little bit more condensed. Comprehensive income. They notice, they show you older financial statements here. Maybe not the complete one. Nevertheless, they show it. They talk about note one, note two, note three. So notice, they basically give you a comprehensive idea that it's in their own words. They can put it, not spin, but they can explain those results in their own way. They're not basically following specific gap disclosure because they also do have note one, note two, note three after the financial statements, but here they explain them. They have this option. So this is what MDNA would entails. And obviously you can just scroll through it, executive overview. Let me just, if I can pull a few things. For example, our business risks COVID-19. Now maybe if you look at the report prior to 2019, this is 2021, you will not see COVID because it wasn't there. So notice, it's at whatever you need to talk about, you will talk about. So COVID is considered a risk for them. Commodities and supply chain. This is a whole supply chain is a great risk for everyone now. Commodity prices are rising now because of the inflation, now they're starting to maybe go down. And supply chain starting to go down of inflation because the federal reserve is increasing interest rate to slow down the economy, but the commodity prices could be going up and that's, that's affected them negatively. Obviously there's a lot of supply chain and they tell you, see note nine for more information, risk associated with climate change. They have some exposure to climate change, risk associated with international operation. For example, maybe in 2022, they will talk about the Russian Ukrainian war and how is that affecting their sales in Europe. Imposition of taxes and regulation on our product. Again, that's important. For example, the state of New York, they impose additional tax on sodas. That's a risk for them. And maybe in Europe, they have high tax on beverage drinks that have a high sugar. So these are all risks for them. Retail landscape, if more and more retails are going online, less and less people will visit the place, they will have less sales. They also need to talk about this risk management framework. So notice, I'm highlighting the risks because that's important. Also market risks that they have. Again, they talk about commodity prices, foreign exchange rate. Obviously inflation is a risk for them. And here they talk a little bit more about commodities and they tell you how they manage the risk of commodities, foreign exchange. And obviously they'll explain how they manage the risk, how they manage interest rate. Then they're gonna talk about, as I said, liquidity, profitability and capital resources you can read the report by yourself. This is in a summary what MDNA is in my auditing course. We'll discuss this topic from a different perspective, management discussion and analysis and how the auditor uses this management discussion and analysis. What should you do now? Go to farhatlectures.com, work MCQs, true false, that's gonna help you understand this concept better. Good luck, study hard, invest in your education and stay safe.