February 2001: Management's Discussion and Analysis (MD&A)(First in a series of GASB Statement No. 34 Bulletins)

Issued To: Chief Fiscal Officers of Counties Cities, Towns, and Villages; Business Officials of School Districts and BOCES

Overview of MD&A

GASB Statement No. 34 requires that the basic financial statements prepared in accordance with GAAP be preceded by a narrative introduction and analytical overview of the government's activities in the form of MD&A. In an objective easily readable non-boilerplate analysis, financial managers will now be required to share their insights and knowledge about the transactions, events and conditions that are reflected in the government's financial statements. The analysis includes a comparison of the current year tot he prior year based on government-wide financial information and in addition should explain the significant variations in fund based financial results and budgetary information. The MD&A will conclude with a description of currently known facts, decision, or conclusions that are expected to have a significant effect on the government's future financial position and operations. This information is intended to assist the users of financial statements in assessing whether the governments' finances have improved or deteriorated. As a best practice OSC encourages all local governments, even those no implementing GASB Statement NO. 34, to prepare an MD&A.

Required Components of MD&A

The MD&A should include:

  1. A brief discussion of the basic financial statements, including the relationships of the statements to each other, and the significant differences in the information they provide.
  2. Condensed financial information derived from government-wide financial statements comparing the current to the prior year.
  3. An analysis of the government's overall financial position and results of operations.
  4. An analysis of balances and transactions of individual funds addressing the reasons for significant changes.
  5. An analysis of significant variations between original and final budget amounts and between final budget amounts and actual results for the general fund.
  6. A description of significant capital asset and long-term debt activity during the year.
  7. A discussion of infrastructure assets if those assets are reported on the modified approach.
  8. A description of currently known facts, decisions or conditions that are expected to have a significant effect on the financial position or results of operations.

Under Generally Accepted Accounting Principles (GAAP), the MD&A is considered "required supplementary information" (RSI). RSI consists of statements, schedules, statistical information or other information which, according to GAAP, is necessary to supplement the basic financial statements. Because the scope of information to be covered is defined (i.e. required), you may not go beyond these eight components.

Additional information pertaining to the statement requirements is including in Statement No. 34 of the Governmental Accounting Standards Board. A sample MD&A is also included. Also available is the Guide to Implementation of GASB Statement 34. The GASB web site can be accessed at www.gasb.org or GASB can be contacted at:

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