Effective with 1975 annual reports, the Securities and Exchange Commission requires that corporate management provide a “discussion and analysis” of the summary of operations, emphasizing significant changes over the past two years. The authors surveyed over 600 Chartered Financial Analysts, examining (1) their reactions to the section of annual reports entitled “Management’s Discussion and Analysis of Operations” and (2) their feelings about management forecasts of future results.

Although the analysts surveyed were skeptical—and, depending on the quality, even critical—of the management’s discussion section, they still found it useful in their analysis of a company. On the other hand, only 44 per cent of the CFA’s surveyed favored inclusion of forecasts in management’s analysis. And when asked what information should accompany a forecast, most cited management’s underlying assumptions.