Accounting and Financial Reporting

Masquerade—Impersonating Analysis in MD&A

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Management’s discussion and analysis, usually referred to by its initials MD&A, is the one element of required supplementary information (RSI) that applies to all governments that issue financial statements prepared in accordance with generally accepted accounting principles (GAAP). MD&A is intended to provide users of government financial statements with some of the insight that managers have into the financial position and results of operations for which they are accountable, and the root causes of changes seen between years.

Analysis answers questions that begin with “why.” Discussion precedes analysis in the name MD&A, but only because of the logical imperative of financial statement users first knowing what the financial position and results of operations are before being able to comprehend why they are so. The overriding objective of MD&A is to provide analysis. GAAP states up front that MD&A “should introduce the basic financial statements and provide an analytical overview of the government's financial activities.” That two of the ten most frequent comments given to applicants to GFOA’s Certificate of Achievement for Excellence in Financial Reporting award program (“COA”) are for missing analysis in MD&A speaks to a general scarcity of true analysis.