Best Practices

Departmental Reports and Management's Discussion and Analysis

Management’s Discussion and Analysis (MD&A) and Required Supplementary Information (RSI) content should be presented in conjunction with departmental reports.

The purpose of the Management’s Discussion and Analysis (MD&A) is to provide an objective and easily readable analysis of the government’s financial activities, based on currently known facts, decisions, or conditions.2 The Governmental Accounting Standards Board (GASB) has clearly mandated that MD&A and other required supplementary information (RSI) accompany the separately issued basic financial statements of any financial reporting entity or component unit. To date, however, authoritative accounting and financial reporting standards have not specifically addressed the contents of departmental reports. Consequently, there is no authoritative basis for extending GASB’s mandate to present MD&A and other RSI content 3 in such reports. Because authoritative accounting and financial reporting standards have not specifically addressed the contents of the separately issued departmental reports, there has been considerable confusion regarding whether MD&A and other RSI content should, in fact, be included in such reports. It would appear that the presentation of MD&A and other RSI content would benefit the users of departmental reports, just as it does the users of the report of a financial reporting entity and the separately issued reports of component units

GFOA recommends that MD&A and other RSI content be presented in conjunction with departmental reports. When MD&A and other RSI content are presented voluntarily, GFOA recommends that their contents be closely modeled on the requirements for MD&A set forth in GASB Codification 2200.109, and for other RSI content requirements set forth in GASB Codification 2200.206, and tailored to the reporting unit’s specific circumstances. Financial statement preparers are encouraged to label MD&A and other RSI content that is presented voluntarily as unaudited to avoid confusion with those portions of the financial section of a comprehensive annual financial report that receive in-relation-to coverage from the independent auditor.4

Preparers of departmental reports should present MD&A preceding the basic financial statements, and present other RSI content immediately following the notes to the financial statements, as if it were required supplementary information (RSI) under the following theory espoused by the American Institute of Certified Public Accountants (AICPA), Audit and Accounting Guide:  State and Local Governments (2018), chapter 16 “Audit Reporting”, paragraph 91:

“Although GASB standards do not address the accounting and financial reporting for separately issued generally accepted accounting principles (GAAP)-based financial statements for the government’s departments, agencies, or programs, in meeting their reporting obligations, auditors should consider the long-established practice dictating that those presentations should apply all relevant GAAP. Thus, in developing an opinion on separately issued GAAP-based departmental financial statements, the auditor considers whether the financial statements include all relevant GAAP financial statements, note disclosures, MD&A topics, and other RSI topics.”


2 GASB Codification 2200.106 (GASB Statement No. 34, Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments, paragraph 8).

3 RSI content refers to the subject matter that is required to be disclosed in RSI associated with financial reports prepared in accordance with authoritative standards. However, by definition, it is not required in other contexts, such as in departmental reports for which no authoritative guidance exists.

4There would be no need to label the MD&A as unaudited if the independent auditor agreed to extend the same in-relation-to coverage to MD&A as to other supplementary information in the financial section.

 In this best practice, departmental reports refers to any separately issued financial reports of units that are not legally separate from a government.  Examples include financial reports for individual departments, agencies, programs, and funds.

This best practice was previously titled Including Management’s Discussion and Analysis in Departmental Reports.