• Young is critical of World Portal’s transparency. Describe the purpose behind the MD&A and Form 8-K. Do her points in items 1 and 4 have merit?
• Young raises issues with the consistent application of accounting methods (Item 2) and the consistent classification of certain line items (Item 3). Is it within the rights of the company to vary accounting methods and reclassify certain line items?

1. Consistent Application of Accounting Policies - Your MD&A states that business was adversely affected by the unexpected early cancellation of two large advertising contracts. Since these contract losses had such a material impact, why didn’t the company issue a press release or 8-K disclosure describing this event in a more timely fashion?
2. Classification of Reported Line Items - World Portal has also grown through many acquisitions. Yet nowhere in the 10-K is there information on how accounting practices are standardized. Do acquired companies set their own policies for revenue and expense recognition, depreciation schedules, accruals, etc.?
3. Supplemental Interpretive Guidance from Management - During your recent analyst’s conference call, your CFO indicated that as of 2003 you are now classifying software research and development as a capitalized item as opposed to a direct expense. She stated that this was consistent with industry practice, but it was not disclosed in the 10-K. Why was this not in the 10-K? What is the material impact on earnings of this change?
4. Interim Voluntary Disclosures - My industry contacts tell me that a major competitor has a new aggressive management team that has offered advertising rates to all your top customers that are 25% to 50% less than your current rates. You will most likely need to match those prices to retain the customer’s business. What impact will that have on future revenues? Why was that not disclosed in the 10-K?

Answer rating: 100% (QA)

The purpose of MDA is to provide a comprehensive and comprehensive definition of the companys financ... View the full answer