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Improving the Usefulness of Management’s Discussion and Analysis

November 20, 2019


Everyone agrees that transparency and disclosure are essential elements for good government. When the Governmental Accounting Standards Board (GASB) introduced the concept of Management’s Discussion and Analysis (MD&A) in GASB Statement 34, they understood that financial managers of governments are the most knowledgeable about the transactions and conditions that are reflected in a government’s financial statements. MD&A was the opportunity to present both a short-term and long-term analysis of the government’s activities. Twelve years after adoption, however, GASB held roundtables around the country as part of their reexamination of the financial reporting model and learned that limited usefulness of MD&A was a recurring theme. What went wrong?

Two distinct issues seem to have stifled creativity and led to a boilerplate approach to MD&A. First, GASB 34 listed the requirements of MD&A in a fashion similar to a laundry list of items to include and also provided an example in Appendix C. This example, however, was not intended to be all inclusive or the expected blueprint for MD&A. Governments have used the example as a refuge to ensure they comply with the requirements. Interestingly, GASB 34 encourages the use of graphs and tables, but the example does not include any, which has prevented governments from using this valuable tool. The reality is, governments vary too much for an example to illustrate the best possible MD&A.

Second, the MD&A implementation guide poses the question, “are governments allowed to discuss issues that are not included in the requirements of GASB 34 paragraph 11?” The answer is no, but further paragraphs assert there is no limit to the information that could be provided if it gives additional detail about required elements. Financial statement preparers have focused on the “no” and ignored the explanatory paragraphs. In particular, the requirements to provide information about known facts expected to have a significant effect on financial position or results of operations often have been lacking. Governments are missing this opportunity to discuss items such as new major grants, lawsuits, labor contracts, funding changes, significant construction projects or gains or losses of significant employers in the community.

Other problems include a lack of meaningful analysis. For example, governments’ MD&A detail changes but many do not provide commentary on the underlying reasons for those changes. Also, governments often fail to discuss governmental and business activities separately.

How can it be fixed? Most importantly, the government must invest the time to improve the MD&A. This means taking a fresh look at their prior year MD&A in a time period without significant deadlines. Reviewing the MD&A at the last minute will not result in improved usefulness. Several questions should be asked:

  • Is the MD&A interesting to a reader?
  • Is the MD&A telling the story of the government?
  • Does the MD&A address the biggest threats facing the government?
  • Does the MD&A address declining revenues or escalating expenditures?
  • Can the reader understand the financial priorities of the government?

Consider other possibilities to improve the commentary. Have we presented the same financial highlights year after year and are they truly the most important factors? Can the overview of financial statements be reduced? GASB 34 says it should be brief, financial statement footnotes include similar information and the standard has been in place for more than a decade. Should we use graphs or charts to improve the analysis? Are there new items that would benefit the reader such law changes or pensions and other benefits?

Ideally, after drafting an MD&A, management should take a step back and ask whether the MD&A has accomplished the following:

  • Covers all requirements listed in paragraph 11 of GASB 34.
  • Truly explains rather than just lists changes.
  • Discloses all relevant and material facts.
  • Provides a visually appealing format to readers.
  • Includes elements from the current year, not just copying the prior year format.

With forethought and careful consideration, government financial managers have a tremendous opportunity through MD&A to inform and educate their citizenry about the factors and conditions facing local governments. Meaningful discussion and analysis provides the transparency and disclosure demanded by citizens and other users of the financial statements. With renewed effort, governments can fulfill the promise of MD&A envisioned by the GASB and improve the usefulness of their MD&A.


All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.


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