Flux analysis that survives review
Two thresholds, because one always has a hole in it. Then the question no threshold can answer: did movements inside the line offset each other?
Paste the lines
One per row: label, current, prior. Tabs, commas or wide spacing all work — so does pasting straight out of a spreadsheet, including $(1,250) style negatives.
It checks the shape of your flux — coverage, and whether each explanation explains anything. It has not seen your ledger and cannot tell you whether an explanation is true.
The movement a variance threshold cannot see
Every flux process begins with a threshold, and the argument about whether it should be a percentage or an absolute is the wrong argument: it has to be both, joined by OR, because each one is blind in the direction the other covers. A percentage screen scales its tolerance with the size of the account — ten percent of a five hundred million dollar line is fifty million dollars — so the larger the line, the more money it waves through. An absolute screen inverts the problem and buries the small accounts where a four hundred percent move is the only sign anything has happened at all. Run both and the question stops being a matter of taste.
But the movement that matters most is not caught by either, and Item 303(b) names it in the same sentence as the requirement itself: the underlying reasons must be described for material changes, including where material changes within a line item offset one another. That clause describes something no screen applied to a net number can ever find. A line that moved two tenths of a percent because a large contract loss was offset by a large price increase has two material movements in it, tells a reader more than almost anything else in the statements, and passes every threshold anybody has ever set. Lowering the percentage does not help. The screen is not asking the question, so a person has to — by customer, by product, by component — and the place to look is the largest accounts, especially the ones that appear not to have moved.
Then there is the explanation itself. “Revenue increased due to an increase in sales” survives review because it is grammatical, arrives on time, and contains the right number; reviewing a flux file late in a close is pattern-matching for completed cells rather than for content. The rule is unusually blunt about this. The discussion must not merely repeat numerical data contained in the financial statements, and amounts need not be recited at all where they are readily computable from them. Restating the movement is not a partial answer — it is the thing expressly excluded.
One last point, which is a relief rather than a trap. A line-by-line analysis of the financial statements as a whole is described in the instructions as neither required nor generally appropriate, and where the reasons for a change in one line explain others, no repetition is needed. Most close processes do the opposite: a sentence per account, effort spread evenly across lines that matter and lines that do not. What that displaces is precisely the slower, more specific work the offsetting clause requires, and which no threshold will ever do for you.
What this tool does not do
The threshold arithmetic and the blind-spot counts are exact on the figures you paste. The explanation classifier inspects words rather than meaning: it reliably catches a restatement, a circular explanation, a vague driver and an unsized list of causes, and it cannot tell whether a well-formed explanation is true. Treat a pass as 'this reads like an explanation', never as 'this is right'. The offsetting question is yours to answer - it is the one thing in a flux that cannot be computed from the numbers, which is exactly why it is asked per line.
- Whether any explanation is TRUE - it checks the form of the sentence, not the facts behind it
- Looking inside a line item for you; the offsetting answer comes from your customer, product or component data
- Whether your thresholds are set at the right level for your business, which depends on materiality judgments this tool has not made
- Materiality itself, for the financial statements or for MD&A
- Balance sheet and cash flow flux, beyond the same threshold and explanation checks
- Segment-level discussion under Item 303(b), and whether your segments need separate MD&A treatment
- Writing the MD&A, or turning a flux file into disclosure - those are different documents with different audiences
- Known trends and forward-looking uncertainties, which are not in the ledger and cannot be derived from a variance
Frequently asked questions
Should we use a percentage threshold or an absolute one?
Both, joined by OR. A percentage screen scales its tolerance with the size of the line, so the bigger the account the more money passes through — ten percent of a $500m line is $50m. An absolute screen buries every small account where a large proportional move is the only sign anything happened. The tool reports how many lines each threshold would have missed on its own, which settles the argument on your own numbers rather than on preference.
A line barely moved. Do we still have to explain it?
Possibly, and this is the part most flux processes cannot see. Item 303(b) requires the underlying reasons for material period-to-period changes 'including where material changes within a line item offset one another'. A line that moved 0.2% because a contract loss was offset by a price rise contains two material movements and passes every threshold. No amount of tuning the percentage finds it — the screen is not asking that question, so somebody has to look inside the line.
What is wrong with 'revenue increased due to an increase in sales'?
It restates the movement instead of explaining it, and the rule addresses that directly: the discussion must not merely repeat numerical data contained in the financial statements, and amounts need not be recited where they are readily computable from them. So restating is not a weak answer, it is the specific thing excluded. The working test is whether a reader could predict anything about next quarter from the sentence.
Do we need a sentence for every account?
No, and the rule says so. Instruction 2 to Item 303(b): where the reasons for a change in one line also relate to other lines, no repetition is required, and a line-by-line analysis of the financial statements as a whole is neither required nor generally appropriate. Most close processes work the other way, and the effort it displaces is exactly the effort the offsetting clause needs.
Is there anything specific required for revenue?
Yes. Where material changes in net sales or revenue are presented, you must describe the extent to which they are attributable to changes in price, to changes in volume, or to the introduction of new products or services. It is a specific requirement rather than a general expectation, and it is the decomposition that most changes how a reader understands the business.
Can we compare against last quarter instead of the same quarter last year?
Yes — Item 303(c)(2)(ii) permits either. If you use the immediately preceding sequential quarter you must provide that quarter's financial information in summary form or identify the prior filing that presents it. And if you change the basis of comparison, the first filing in which you change it must explain why and present both comparisons.