Despite the initial role of earnings forecast reports in enhancing transparency, over time these reports encountered numerous problems, including earnings manipulation and prolonged trading halts of listed firms. These issues prompted policymakers to move toward replacing this tool with MD&A (Management’s Discussion and Analysis). The primary objective of this replacement was to improve the quality of disclosure and to provide a more comprehensive framework for analyzing companies’ performance.
This study examines the shortcomings and challenges present in the current practice of preparing MD&A reports and proposes strategies for their improvement. In addition, it investigates the advantages and limitations of both MD&A and earnings forecast reports. The present research employs the classical grounded theory methodology and is based on interviews with 25 subject-matter experts. The research data were coded and analyzed using NVivo and Excel software.
The findings identify deficiencies in the current state of MD&A reporting, including ambiguity in accountability, the use of MD&A reports to serve specific interests and poor content quality. Furthermore, the study proposes appropriate strategies to address these shortcomings, such as assurance on MD&A reports, imposing penalties for deviations in these reports, and scenario-based presentation of forward-looking information.
The novelty of this research lies in its specific focus—unlike prior studies—on the shortcomings and challenges of providing information beyond the financial statements through MD&A reports. Moreover, by employing the grounded theory research method, it offers strategies tailored to the specific institutional and regulatory context of Iran.