MD&A Amendments

FASAB Contact: Robin Gilliam, gilliamr@fasab.gov, 202-512-7356

Project Objective

The Management’s Discussion and Analysis (MD&A) Amendments project combines efforts from the Reporting Model Phase I: MD&A and Stewardship Investments Improvements and Risk Reporting projects to provide updated standards for preparing MD&A in one concise document.

Currently, most of the standards-based language for developing MD&A resides in Statement of Federal Financial Accounting Concepts (SFFAC) 3, Management’s Discussion and Analysis, rather than in Statement of Federal Financial Accounting Standards (SFFAS) 15, Management’s Discussions and Analysis.

Most of the standards-based language is included in SFFAC 3 and not SFFAS 15 due to the following history:

The Board originally worked on MD&A during the window in which it was seeking generally acceptable accounting principles (GAAP) recognition from the American Institute of CPAs (AICPA). As a result, SFFAC 3 was written more like an SFFAS to holistically describe MD&A even though it was exposed as a concepts statement.

During the exposure draft response period, the audit and preparer community said to achieve a GAAP-based statement that always included MD&A, the Board must create standards that required it. The Board, therefore, quickly used the MD&A outline from SFFAC 3 and proposed SFFAS 15 as required supplementary information.

As a result, the guidance in SFFAC 3 is not concepts-based but standards-based and should be read with SFFAS 15 by preparers to understand what to include in MD&A. However, most preparers only rely on SFFAS 15—which is very limited.

The primary objectives of this project are to:

  1. incorporate standards-based language from SFFAC 3 into SFFAS 15 to provide a standalone SFFAS for preparing MD&A;
  2. update forward looking information to include risk reporting standards as guidance for discussing how resources will be used efficiently and effectively in achieving performance goals for the reporting entity as a whole and any mission-related programs, functions, and/or activities;
  3. explain what information to analyze and discuss about the reporting objectives to achieve a financial focus; and
  4. reduce preparer burden by streamlining MD&A to focus on material changes to amounts in financial statements and supplemental information resulting from management of operating performance for the reporting entity as a whole and any mission-related programs, functions, and/or activities.

HISTORY OF BOARD DELIBERATIONS (reverse chronology)

August 28-29, 2019

At the August 28 meeting, members approved the proposed project plan for the management’s discussion and analysis (MD&A) amendments project.

The Board then began developing objectives for MD&A based on the standards in SFFAC 1, Objectives of Federal Financial Reporting: budgetary integrity, operating performance, stewardship, and systems and control.

Members agreed on the following MD&A objectives for budgetary integrity:

  • MD&A should concisely explain financing resources and the sources and status of budgetary resources.
  • MD&A should concisely explain why significant changes in budgetary and/or financing resources were needed during the reporting period.

In addition, members added a general objective to encourage a more concise and readable MD&A.

  • MD&A should concisely explain—in plain language—any budget and financial terms used, such as but not limited to unfunded, unobligated, and net cost of operations.

Members will begin developing MD&A objectives for operating performance at the October 2019 Board meeting.

Issue Paper for August 28-29, 2019 – Tab C (PDF)

June 26-27, 2019

At the June 2019 Board meeting, staff introduced the new project, MD&A amendments. This is a consolidation of the risk reporting and reporting model phase I: MD&A and stewardship investments improvements projects. Research from those projects identified that Statement of Federal Financial Accounting Concepts (SFFAC) 3, Management’s Discussion and Analysis, includes most of the standards-based language that staff will use to amend SFFAS 15, Management’s Discussions and Analysis.

Members were curious about staff’s recommendations about the future of SFFAC 3. Staff explained the initial analysis of SFFAC 3 was only to present proposed amendments to SFFAS 15. Decisions about what to relocate or rescind from SFFAC 3 and information included in other concepts about MD&A will be presented at a future Board meeting. Members agreed, noting that SFFAS 15 amendments should provide clarity and focus to help manage and reduce any additional burdens currently placed on preparers.

The following items were discussed in relation to amending SFFAS 15.

Members agreed that materiality is applied differently to MD&A than basic information. While the financial statements include materially quantitative information, management should apply more judgment to what qualitative information to include in MD&A. For example, management should understand trending issues to determine what citizens are getting for their money and what qualitative information will be useful for those interest groups. Management could also include a qualitative discussion in MD&A to explain why a financial statement balance is growing, the associated risk, and potential effect on operations.

To ensure inclusion of important information, members agreed not to include the materiality boilerplate as an amendment to SFFAS 15. Instead, the Board wants to include a discussion about the concept of materiality and how it applies to MD&A.

The following administrative amendments were approved for SFFAS 15 to conform to current SFFAS formats: change the header title from “Statement of Standards” to “Standards” and add a scope and definition section. Members agreed to add items to be defined at future meetings. Possible terms include financial condition and financial position.

Members requested that staff develop objectives for the MD&A before continuing to develop standards. Objectives should independently help preparers understand what should be achieved in MD&A and prevent the mentality that checklist compliance will lead to an effective MD&A.

Issue Paper for June 26-27, 2019 – Tab G (PDF)