As a certified public accountant (CPA) who has focused my career on local governments, I enjoy reading a city’s or village’s financial statements. Before I embark on a vacation (and yes, we will travel again someday), I have been known to read through the online financial statements of my destination city or village. I know, I’m probably in the minority!

Let’s be honest – governmental financial statements can be difficult to navigate for most, including boards, councils and constituents. This can make management’s job more difficult, especially during the COVID-19 pandemic, when having an understanding of up-to-date, accurate financial information is even more critical.

One way to ensure the annual financial statements are more meaningful is to include a management’s discussion and analysis (MD&A) before the basic financial statements. An MD&A is required by accounting standards boards, but not all governments include it in their annual financial statements.

An MD&A is a valuable component of the financial statements, prepared by management, which provides readers with an overview of the government’s financial position. The components and benefits of an MD&A include:

  • Transparency to currently known facts, decisions and financial conditions
  • A holistic financial picture of the community and what has improved or deteriorated since the prior year
  • Condensed financial information
  • Comparisons of the current year to prior year results, including general fund budget and explanations for variances with an emphasis on the current year
  • A focus on major funds
  • A summary of significant current-year capital projects
  • Long-term debt activity and the community’s debt position at year-end
  • Graphs and charts to represent certain results

The MD&A should conclude with an evaluation of current condition impacts (e.g., the COVID-19 pandemic) on the community and related changes to government operations such as lost revenues, changes in tax or unemployment bases, reduction in reserves and changes to debt management. This section of the MD&A includes information that management is aware of on or before the audit report date and is based on objective statements from factual information.

An ideal MD&A is easy to read and comprehend, so even if someone doesn’t read beyond the MD&A, they will still have a solid understanding of the entity’s financial position. The “GASB Codification 2200—Comprehensive Annual Financial Report,” paragraphs .108 and .109h, provides additional guidance on the MD&A requirements.

Soon (hopefully), there will be an appropriate time to dust off our luggage and venture out on our next vacation. Consider what visitors to your town will learn from reading the MD&A of your state, county, city, village or town! 

For more information on this topic, or to learn how Baker Tilly public sector specialists can help, contact our team.

Carla A. Gogin
Partner, CPA
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