Management’s Discussion and Analysis (MD&A)
FASAB Contact: Robin Gilliam, firstname.lastname@example.org, 202-512-7356
|Request for Comment||Due Date||Online Link|
to questions for
|Comment Letters||Final Pronouncements|
|Management's Discussion and Analysis, Rescinding and Replacing SFFAS 15 (PDF)||December 7, 2023||Survey Link||Comment Letters||N/A – Currently Under Due Process|
This project is a segment of the Board’s reporting model initiative.
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 goals of this project are to:
- incorporate standards-based language from SFFAC 3 into SFFAS 15 to provide a standalone SFFAS for preparing MD&A;
- 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;
- explain what information to analyze and discuss about the reporting objectives to achieve a financial focus; and
- 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)
September 7, 2023
On September 7, 2023, FASAB released for public comment a proposed Statement of Federal Financial Accounting Standards (SFFAS) titled Management’s Discussion and Analysis: Rescinding and Replacing SFFAS 15. The Board requests comments on the ED by December 7, 2023.
The proposed standards would update the guidance for management’s discussion and analysis (MD&A). This proposal would provide a comprehensive set of standards to guide management in how to present an MD&A that is balanced, integrated, concise, and understandable about the reporting entity’s organization and mission; financial position and condition; operating performance, opportunities, and risks; and systems, internal controls, and compliance with applicable laws and regulations. The Board proposes these standards to provide a principle-based approach that would merge and update relevant content from SFFAC 3 and SFFAS 15 and is consistent with FASAB’s reporting objectives for budgetary integrity, operating performance, stewardship, and systems and controls.
June 13-14, 2023
At the June 2023 meeting, the Board reviewed the MD&A exposure draft and made minor edits to the questions for respondents. Ms. Johnson and Mr. McNamee made minor edits to their alternative views.
Members generally agreed with the pre-ballot. Staff will follow up with the exposure draft for balloting in preparation for releasing to the public for a 90-day comment period.
Briefing materials – Topic D
April 18-19, 2023
At the April 2023 meeting, members agreed on final technical edits in preparation for a pre-ballot MD&A exposure draft (ED) as follows:
- Questions for Respondents
Members agreed to include “partially agreed” as an option for each question to support a new online survey for collecting comments. The survey will provide space for an explanation.
- Basis for Conclusions
Staff explained that when a basis for conclusions paragraph starts with “the Board believes,” this will explain what the Board wants to achieve. When a basis for conclusions paragraph starts with “the Board’s intent is,” this text will explain how to achieve the reporting.
Members agreed to the following edits in the basis for conclusions:
- Insert the phrase “standards-like” in paragraph A2 and footnote 13 to reference SFFAC 3.
- Remove a reference in footnote 13 to the concepts being authoritative.
- Change the phrase “each major program” in paragraph A16 to “major programs as presented in the reporting entity’s statement of net cost.”
- Add “key organizational components” to paragraph A20 for performance,
MD&A ALTERNATIVE VIEW
Staff received an alternative view to the MD&A pre-ballot exposure draft from Ms. Johnson. An alternative view gives respondents an opportunity to hear a different view from a member that is contrary to what the Board is proposing.
Ms. Johnson complimented the project for solidifying the Board’s view of what should be in the MD&A. She believed that SFFAS 15 was well researched and well written more than 20 years ago, has done a good job in fulfilling its purpose. As such, she did not think it needed to be rescinded, only amended.
The project has provided an opportunity to review agencies’ MD&A. She realized that some agency MD&As are longer than they need to be, might contain technical language, or might contain some duplicative information. However, she did not think a new standard would resolve these challenges or issues. She believed agencies just need more time.
Ms. Johnson believed the alternative view would give the community a chance to think about another option—more targeted changes to SFFAS 15 rather than rescinding SFFAS 15 and issuing a new SFFAS.
Ms. Johnson included three concerns in her alternative view. Her first concern was that the ED does not provide any significant changes. Her second concern was how the ED explicitly includes a standard for each MD&A characteristic; SFFAS 15 embedded these characteristics within the standards and basis for conclusions. Ms. Johnson was concerned that a specific standard for each characteristic would increase the burden to agencies because they would have more items to add to their checklist for completing MD&A.
Ms. Johnson’s third concern was that the ED imposes the same MD&A requirements on all entities regardless of size.
Ms. Johnson stated she will amend her alternative view to address questions from other members.
Staff will prepare an analysis on the alternative view for the June 2023 meeting for members to discuss. This will include an updated basis for conclusions with a standard introductory paragraph about alternative views from FASAB’s rules of procedure and the alternative view as presented by Ms. Johnson, as long as there are no actual misstatements or any content that is factually incorrect.
Staff will add a question to the pre-ballot ED for respondents to provide comments on the alternative view. The Board has an opportunity, in the introduction to the question for respondents, to reaffirm its position as it relates to the alternative view, including if there are any points in the alternative view where the Board disagrees.
Members will also determine whether to update the basis for conclusions to discuss any particular points of the alternative view that the Board thinks are relevant to consider.
Briefing materials – Topic C.1
February 22-23, 2023
At the February 2023 meeting, the Board reviewed the draft MD&A exposure draft in preparation for a pre-ballot in April 2023.
Members made final minor technical edits to the Executive Summary, Questions for Respondents, Purpose of MD&A, the standards for concise and financial position and condition, and the basis for conclusions for concise, financial position and condition, and stewardship investments.
Briefing materials – Topic D
December 13-14, 2022
At the December 2022 meeting, the Board began working on the Purpose of MD&A paragraph.
The Board continued to review, edit, and finalize the intent for the proposed standards and related basis for conclusions. Members made final minor technical edits to the “balanced,” “concise,” and “understandable” standards.
Members finalized the intent for the “performance” standard by explaining in the proposed basis for conclusions the importance of 1) linking performance to cost and 2) including whether key performance achievements resulted in cost savings for the agency.
Members decided not to include “significant stewardship investments” in the proposed “financial position and condition” standard because SFFAS 57, Omnibus Amendments 2019, rescinded the definition and all guidance. Members agreed to draft language for the proposed basis for conclusions and to add a question for respondents about the explanation in the basis for conclusions.
Briefing materials – Topic D
October 25-26, 2022
The Board reviewed proposed standards and the basis for conclusions for Presenting Information in MD&A to address any remaining technical issues and to finalize the intent for each.
The Board agreed that the intent for a balanced MD&A is to discuss and analyze when there has been a significant positive or negative effect on financial position, financial condition, or operating performance.
The Board agreed that an integrated MD&A should combine financial and non-financial and qualitative and quantitative information to present a comprehensive and unified discussion about the reporting entity’s significant programs, projects, and/or key performance results.
This proposed standard is the key difference from paragraph 2 of SFFAS 15, Management’s Discussions and Analysis, which requires sections.
The Board agreed that a concise MD&A should summarize information by (1) emphasizing the vital few matters that significantly affect the reporting entity’s financial position, financial condition, and/or key performance results; (2) avoiding duplicating information by providing references to detailed information found outside of MD&A; and (3) presenting information relevant for the current year.
The Board agreed that an understandable MD&A should present content in plain language, use headers to identify specific content, and, as appropriate, include charts, tables, and/or graphs to enhance the understanding for anyone that may not have extensive knowledge about the U.S. government and/or its accounting.
The basis for conclusions will include examples of a balanced, integrated, concise, and understandable MD&A.
The Board reviewed proposed standards and the basis for conclusions for Information Discussed and Analyzed in MD&A to address any remaining technical issues.
Organization and Mission
The Board agreed that MD&A should provide a summary about the reporting entity and its components to help users understand what it expects to achieve during the reporting period. Staff will include a discussion about the components of a reporting entity in the basis for conclusions.
The Board agreed that the basis for conclusions should include information about how the mission and organization provides the context for financial information and about how components of a reporting entity may be discussed in the MD&A.
Financial Position and Financial Condition
The Board agreed that it should address an open item from SFFAS 57, Omnibus Amendments 2019, to report stewardship investments in MD&A as well as to consider providing additional guidance in the future. Therefore, the Board agreed that “significant stewardship investments” should be discussed and analyzed in MD&A. SFFAS 57 also indicated that preparers might need additional guidance. The basis for conclusions should provide enough information for agencies to determine if they should report significant stewardship investments in MD&A. In addition, the exposure draft will include a question for respondents to help the Board determine if additional guidance is necessary for reporting significant stewardship information.
The Board agreed that MD&A should discuss and analyze the key performance results in relation to costs and any significant effects on budgetary and/or financing resources.
The basis for conclusions should address how the agency identified and achieved its key performance measures and targets. The basis for conclusions should continue to encourage the reduction of statistical reporting as required by the Government Performance Results Modernization Act (GPRAMA) and provide an explanation about why the difference in reporting periods for GPRAMA reporting and agency financial reporting causes a reporting burden for preparers.
Opportunities and Risks
The Board agreed that MD&A should discuss and analyze the significant opportunities identified by management to enhance performance results, plans to leverage such opportunities, and the potential effect on financial and budgetary results of carrying out those plans.
The Board agreed that MD&A should discuss and analyze the significant risks identified by management that have a potentially negative effect on performance results, plans to mitigate such risks, and the potential impact on financial and budgetary results of carrying out those plans.
The basis for conclusions will provide a description for both opportunities and risks.
Systems, Controls, and Compliance
The Board agreed that MD&A should summarize information about (1) management’s assessment of the effectiveness of the reporting entity’s internal controls and financial management systems and (2) the reporting entity’s compliance with laws, regulations, contracts, and grant agreements that are relevant to financial reporting. Such reporting should address internal control weaknesses, systems deficiencies, and instances of non-compliance that have a significant/material effect on the reporting entity’s financial and performance reporting and plans the reporting entity has to address them.
Briefing materials – Topic A
August 23-25, 2022
The Board reviewed proposed standards for Presenting Information in MD&A.
The Board reviewed the four characteristics—balanced, integrated, concise, and understandable—that describe how management should provide a “streamlined narrative” in the MD&A:
Proposed standard for balanced
The Board agreed that for the MD&A to provide balanced information, management should include information about events or conditions during the reporting period and financial trends that had a significant positive or negative effect on the financial position and condition.
The Board agreed that this standard should include the following as an example:
Management may discuss and analyze performance results that had a significant (1) positive effect (e.g., accomplishments that resulted in reduced costs); or (2) negative effect (e.g., challenges that resulted in increased costs) on financial position and condition.
Proposed standard for integrated
The Board agreed that for the MD&A to provide integrated information, management should present a unified discussion of related information by blending financial and non-financial and qualitative and quantitative types of information.
The Board’s intent is for management to include information that has a relationship to, for example, a program, instead of providing segmented information in the sections as prescribed by Statement of Federal Financial Accounting Standards (SFFAS) 15, Management’s Discussions and Analysis.
The Board agreed that this standard should include the following as an example and that the word “interrelationship” will help to explain how “related information” may be integrated.
Management may present the interrelationship of budgetary, financial, and operating performance information, based on the structure of the reporting entity as a whole and across its components’ missions.
Proposed standard for concise
The Board agreed that for the MD&A to provide concise information, management should emphasize the vital few matters that could affect the judgments and decisions of users of general purpose federal financial reports (GPFFRs).
The Board agreed to include this example to explain what information management should consider in relation to “vital few matters”:
Management may include information that it believes could
- lead to significant actions by top management of the reporting entity;
- be significant to the managing, budgeting, and oversight functions of Congress and the Administration; or
- significantly affect the judgment of citizens about the efficiency and effectiveness of their Federal Government.
The Board decided that the concise characteristic should also address boilerplate language. The Board’s intent is to convey that management should be deliberate with including only information relevant for the current year and not just repeating information from year to year.
The Board decided that the concise characteristic should also address not duplicating information in the MD&A. The Board’s intent is for management to provide summary information in the MD&A and reference the detailed information in the GPFFR. The Board discussed auditing concerns related to referencing other sources, such as websites, where the information can change and is not audited. Although MD&A is required supplementary information (RSI), management still has to demonstrate that everything in it is consistent with anything incorporated by reference for auditing purposes.
Proposed standard for understandable
The Board agreed that for MD&A to be understandable to citizens, management should present content in plain language, use headers to identify specific content, and as appropriate, include charts, tables, or graphs. The Board agreed that presenting content in plain language should help to streamline the MD&A narrative. The Board believes that management should use headers to enhance the understandability of the MD&A by highlighting breakouts of integrated information instead of breaking information into sections. The Board believes that including charts, tables, or graphs—as appropriate—provides users with different ways to process the information.
The Board reviewed proposed standards for Information Discussed and Analyzed in MD&A.
Proposed standard for organization and mission
The Board’s intent is to allow management the flexibility for deciding how to discuss and analyze (if appropriate) its reporting entity and component entities, despite the size of the organization.
Proposed standard on financial position and financial condition
The Board’s intent for discussing financial position and condition is to include three types of information: (1) the composition—significant balances—of financial statement line items/elements, (2) significant changes in balances from the prior reporting period, and (3) trends to understand what caused the financial position and condition to improve or deteriorate.
The Board agreed that management should discuss the three types of information for:
- assets, liabilities, and net position; net cost and revenues, and budgetary resources and financing sources;
- business-type activity;
- social insurance and long term fiscal projections;
- required supplementary information, such as stewardship investments; and
- other factors that significantly affect financial condition and position.
Proposed standards on performance, opportunities, and risks:
The Board’s intent is for management to discuss and analyze
- key performance results in relation to costs incurred;
- significant opportunities identified by management to enhance performance results, plans to leverage such opportunities, and the potential impact on financial and budgetary results of carrying out those plans; and
- significant risks identified by management that have a potentially negative effect on performance results, plans to mitigate such risks, and the potential impact on financial and budgetary results of carrying out those plans.
Proposed standard on systems and controls
The Board’s intent is for management to provide an assessment of the following for its reporting entities:
- Effectiveness of the internal controls and financial management systems
- Compliance with laws and regulations relevant to the entity’s financial reporting and contract and grant agreements
- Internal control weaknesses, systems deficiencies, and instances of non-compliance that have a significant effect on the reporting entity’s financial and performance reporting and corrective action plans to address them
Briefing materials – Topic A
June 22-23, 2022
Members reviewed portions of the proposed standards and basis for conclusions in the draft ED.
The Board decided that standards in Presenting Information in MD&A should define and explain the four characteristics of a streamlined narrative. The Board came to the following agreements about the terms balanced, integrated, concise, and understandable:
- To achieve a balanced MD&A, management should include what positive and negative events had a significant effect on the financial position and condition of the reporting entity. Performance achievements and challenges should be included as an example of positive and negative information.
- To achieve an integrated MD&A, members agreed that management should weave components of information into a whole, complete narrative. Members want management to present the interrelationship of financial and operating performance information with budgetary outcomes, based on the structure of the reporting entity as a whole and across its component’s missions. Management should include financial and non-financial, and qualitative and quantitative types of information to explain these relationships.
- To achieve a concise MD&A, members agreed that management should include the “vital few matters.” Content from paragraph 6 of SFFAS 15 will be incorporated to explain what is expected by management when discussing and analyzing “vital few matters.”
- To achieve an understandable MD&A, members agreed that citizens are the appropriate audience for MD&A. Members agreed that plain language is an appropriate writing style for citizens. Members agreed that management should also use non-narrative tools, such as charts, tables, and graphics to assist with understandability. Members also agreed that management may use appropriate headers to identify specific content for ease of understanding the MD&A.
The Board decided that the standards in Information Discussed and Analyzed in MD&A should include descriptions of the terms organization and mission, financial information, performance results, systems, controls, and non-compliance, and opportunities and risks as follows:
- Organization and mission should be based on the size and complexity of the reporting entity. For example, a large reporting entity with many different agencies could write a short paragraph to explain each agency and its responsibilities. For a small agency, a paragraph describing its mission and organization may be sufficient.
- Financial information should explain why the financial position and condition improved or deteriorated and where spending occurred. This will be accomplished by discussing significant changes from the prior reporting period and significant trends for financial statement balances, including costs and revenues. This paragraph should also include a discussion and analysis about balances related to business-type operations, social insurance statements, and statements of long-term fiscal projections of the consolidated financial report of the U.S. Government.
- Performance results should explain key performance results in relation to costs incurred and any significant impacts to budgetary and/or financing resources. It should be clear that reporting entities can reference GPRAMA instead of duplicating it because the type and timing of reporting information is different from what is expected in the MD&A.
- Systems, controls, and non-compliance should provide management’s assessments of its financial management systems and controls, plans to address significant weaknesses in internal control in systems, and/or non-compliance with applicable laws. A reference to laws such as the Federal Managers Financial Integrity Act (FMFIA), Federal Financial Management Improvement Act (FFMIA), and Federal Information Security Management Act (FISMA) is acceptable, but a discussion of the specific federal laws is not necessary.
- Significant opportunities and risks should identify risk plans and mitigation for significant opportunities and risks identified by management through the reporting entity’s risk management policies and procedures.
The Board requested that the basis for conclusions include additional clarification: an explanation of what standards-based language means, footnotes for references, the Board’s reasoning behind the agreed upon wording and expectations for each proposed paragraph, and an explanation for how key pilot feedback informed Board decisions for the proposed standards.
Briefing materials – Topic C
April 26-27, 2022
Members reviewed the draft MD&A ED to reach consensus on substantial issues. A common Board theme is changing preparers’ behavior for how to present information in MD&A. Members reflected on this theme throughout this session to help determine if terms and content support this vision.
The Board made the following decisions:
- Keep the title, Management’s Discussion and Analysis: Rescinding and Replacing SFFAS 15, Management’s Discussions and Analysis, because this proposal will entirely replace SFFAS 15.
- Describe MD&A as a “streamlined narrative that is balanced, integrated, and concise.”
- Add an additional paragraph to explain what the Board expects from a balanced, integrated, and concise MD&A.
- Add three additional questions for respondents to learn if the Board’s intent is clear.
- Include a discussion about why and how the Board utilized SFFAC 3 to develop this proposal.
- Clarify the guidance for systems, controls, and compliance.
- Clarify the guidance for performance.
- Clarify the guidance for financial condition.
- Identify the other SFFASs that require information in MD&A so as not to duplicate information.
Briefing materials – Topic C
February 23-24, 2022
At the February meeting, members reviewed the pre-ballot MD&A exposure draft.
The Board agreed to the following updates to the executive summary:
- Include the terms “balanced,” “integrated,” and “concise” in the MD&A vision.
- Explain how the proposed MD&A standards should change reporting behaviors.
- Explain that the standards-based language in SFFAC 3, Management’s Discussion and Analysis, was incorporated into the proposed standards.
- Note that SFFAS 37, Social Insurance: Additional Requirements for Management’s Discussion and Analysis and Basic Financial Statements, will not be affected by this proposed guidance.
- Discuss how the proposed MD&A standards provide flexibility for how much a reporting entity should report in relation to its size and mission.
The Board agreed to include a question in the questions for respondents section to learn if the proposed standards would achieve the Board’s vison of a balanced, integrated, and concise MD&A.
The Board agreed to present the proposed MD&A standards in two themes titled Information Discussed and Analyzed in MD&A and Presenting Information in MD&A.
The Board agreed on the following updates for the standards in the section titled Information Discussed and Analyzed in MD&A:
- Paragraph 6.a: MD&A will require information that ties cost to performance instead of the GPRAMA required statistical information.
- Paragraph 6.b: MD&A will require information about how net cost relates to key performance achievements and challenges.
- Paragraph 6.d: MD&A will require information about sustainability, including key opportunities and risks, from agencies that provide sustainability reports.
The Board agreed that the basis for conclusions should reference the MD&A objectives and MD&A vision framework tested by the pilot as part of the process for developing the standards, but not include any specifics.
The Board agreed that it was too soon to pre-ballot and will review an updated version at the April 2022 meeting.
Briefing materials – Topic A
December 14, 2021
Members reviewed the draft MD&A exposure draft.
Edits to Definitions
The Board agreed to update the financial position definition by considering alternatives to the word “status,” such as account or balance. The Board agreed to include budgetary resources, with an explanation in the basis for conclusions, because it is a measure of financial position for the federal government environment. The Board also agreed to reference concepts that define financial position.
The Board agreed to update the financial condition definition to reference concepts that define financial condition.
The Board agreed to update the key performance challenges and achievements definition by changing the title to Key Performance Achievements and Challenges and referencing the operating performance concepts to clarify intent and distinguish from basic performance reporting.
The Board agreed to update guidance on significance by:
- moving it from the definition section and to the Presenting Information in MD&A theme;
- changing “meaningful” to “relevant;”
- providing an explanation instead of a definition;
- referring to the vision framework to help users understand the context of significance, set guidance for parameters, and emphasize that significance is a matter of professional judgment;
- reviewing SFFAS 44, Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use, to reference previous due process completed by the Board on “significance;” and
- including examples in implementation guidance.
Edits to Themes
The Board agreed to
- move the theme Information Presented in MD&A before the Presenting Information in MD&A theme and remove the Financial Condition theme; and
- merge the financial condition standards into the Presenting Information in MD&A
Briefing Materials – Topic D
The objective of this project is to update guidance to assist management in creating a balanced, integrated, and concise discussion for a streamlined MD&A. At the August 2021 Board meeting, members requested themes to group like standards. Members also requested placement of certain standards, such as those that relate to references. Therefore, staff is developing a draft exposure draft for members to review the standards under development.
August 24-25, 2021
At the August 2021 Board meeting members continued to review proposed MD&A standards.
Members agreed that MD&A standards should
- be broad based;
- provide a holistic perspective;
- define terms to help users better understand the content/context; and
- organize related standards by themes.
The Board reviewed the following proposed MD&A standard concerning financial position.
3.A. MD&A should summarize the reporting entity’s financial position by explaining why significant changes in assets, liabilities, cost, revenues, and budgetary/financing resources occurred since the prior reporting period, including performance challenges and achievements; and actions taken and planned to address these challenges.
3.B. MD&A should summarize long-term/forward-looking actions planned to address known challenges that could significantly impact the reporting entity’s financial position and operating performance in the future.
3.C. MD&A should summarize significant cost trends.
For 3.A and 3.C, members agreed to
- merge the guidance;
- remove “performance challenges and achievements” from 3.A; and
- change the term from “cost trends” to “financial trends.”
For 3.B, members agreed to
- move the guidance to a separate standard;
- link to cost;
- group with the opportunities/risks proposed standard; and
- identify which buckets exist in relation to agency-planned actions.
The Board reviewed the following updated proposed MD&A standard concerning financial condition.
Members discussed the following options to identify which reporting entities should include a discussion about financial condition in their financial reports while considering a holistic approach to reduce reporting burden.
- Agencies that materially contribute to the financial condition of the United States should present financial condition in their MD&A.
- Agencies that do not have a material impact on the financial condition of the United States should only report financial position.
- Financial condition is broader than just those agencies that materially contribute to the government-wide report because the phrase encompasses measures for sustainability.
- Sustainability statements, such as social insurance and unemployment
- Agencies with large land holdings, minerals, and other resources
- Agencies expected to recover their costs through fees to the public or other agencies
- The Federal Deposit Insurance Corporation has a risk ratio and a restoration plan.
The Board reviewed the following proposed MD&A standard concerning opportunities and risks.
Members want to know what is planned by the reporting entity to address opportunities and risks in relation to expected results.
The Board reviewed the following proposed MD&A concerning visual aids and references:
MD&A should include visual aids, such as charts, tables, or graphs along with the qualitative and quantitative summary.
Management should include references to websites or other areas of the agency financial report to provide additional information as necessary.
Members agreed to combine these proposed standards into a “how to present MD&A information” theme, either at the beginning or end of the content standards.
The Board reviewed the following proposed MD&A standards concerning producing reliable financial information:
Members preferred the term “significant” to “key drivers.” For consistency with other proposals, the Board preferred the term “plans” to “short- and long-term actions.”
Members preferred the phrase “weaknesses in internal control over financial reporting” to “control weaknesses that may hinder producing reliable financial information.’”
Briefing materials – Topic A
June 22-23, 2021
At the June 2021 Board meeting, members began to review proposed MD&A standards.
The Board will develop the standards in a more flexible timeline. The Board will determine which level of the GAAP hierarchy should include explanations and illustrations.
The Board agreed to move the following sentence to the Scope section of the exposure draft:
MD&A should provide a balanced, integrated, and concise financial and non-financial discussion and analysis about the reporting entity’s financial position and condition and its current actions and plans to improve performance.
The Board tentatively agreed to the following proposed standard. The Board’s main concern is providing enough information to help preparers determine how to break out the organizational structure and decide at what level of detail to discuss the mission for agencies of different sizes. Members will continue this discussion at a future Board meeting.
MD&A should summarize the entity’s mission, organizational structure, and key performance challenges and achievements.
The Board agreed to the following definition for financial position. This is based on the traditional definition, which focuses on the balance sheet.
Financial position: The status of a reporting entity’s assets, liabilities, net position, and budgetary resources as of the date of the financial statements.
The Board tentatively agreed to the following definition for financial condition. The Board will deliberate this definition within the context of existing concepts and references in the FASAB Handbook. Members will continue this discussion at a future Board meeting.
Financial condition: A broad, forward-looking, financial and nonfinancial discussion and analysis about how the reporting entity’s operations and performance has and will contribute to the nation’s current and future well-being.
Briefing materials – Topic B
April 27-28, 2021
At the April 2021 meeting, members reviewed the findings from the MD&A pilot, which ran from January 1 – March 26, 2021. Members heard from three pilot agencies: Maribel Langas Miller from the Department of Defense, James DeLoach from the Department of the Interior (Interior), and Dorothea Malloy from USAID. The Board also heard from three user reviewers: Andres Vinelli, a researcher; Danielle Pollock, a master’s student working at a small accounting firm; and Morgan Aronson, an Interior inspector general. The presenters shared their MD&A pilot experiences.
Agency pilots and user reviewers agreed that a streamlined MD&A can achieve balance and harmony by
- providing a comprehensive connection between performance, non-financial and financial information, and systems information while avoiding a silo effect of putting information in separate sections;
- focusing on key drivers (like COVID-19) that impacted performance goals, significant changes in financial statement lines, and management’s decisions during the reporting period;
- providing concise and concrete examples about the magnitude of risks and current and planned actions to address them;
- including high-level performance goals that support the current leadership agenda instead of low-level metrics;
- including well labeled trend graphs that integrate performance, financial, and budgetary resource information, and written summaries; and
- including more hyperlinks to detailed performance data and other important documents.
Members agreed to the optimistic timeline to publish the amended MD&A standards in June 2022.
Members agreed to the roadmap, which includes amending MD&A concepts and standards, creating a task force, issuing implementation guidance, executing an extensive training campaign, and collaborating with OMB on OMB Circular A-136 and AGA CEAR to successfully streamline the MD&A.
Briefing materials –TOPIC D
Oct 21-22, 2020
At the October meeting, members continued to update the draft MD&A vision framework (the framework) in preparation for the MD&A pilot.
Members agreed that the first sentence should be the vision statement, describing what MD&A should accomplish. The remaining information should explain how to achieve the MD&A vision. In addition, members agreed to emphasize in the framework the theme from the following sentence in SFFAS 15, Management’s Discussions and Analysis, paragraph 6:
MD&A should deal with the “vital few” matters; i.e., the most important matters that will probably affect the judgments and decisions of people who rely on the GPFFR as a source of information.
Members agreed to update the framework to:
- include a clearer connection between cost and performance to help with decision making;
- encourage management to discuss significant changes in trends over multiple years;
- change the term “balances” to “amounts” to include all financial statement items and not just balance sheet balance; and
- remove specific reference to hyperlinks to avoid auditing issues and replace with wording similar to SFFAS 47, Reporting Entity, and 52, Tax Expenditures. For example, “provide additional information…”
Staff discussed the following items concerning the pilot with members:
- Pilot Timeline: Pilot agencies will have two months between January and February 2021 to complete a sample MD&A from the MD&A vision framework and objectives. The sample MD&A will use the information from the agency’s FY 2020 MD&A. Staff will monitor agency progress to determine if the deadline needs to be extended.
- Recruiting Pilot Agencies: Staff is recruiting up to eight agencies for the MD&A pilot. Staff hopes to include the following populations: one to two small agencies, one to two medium agencies, and three to four large agencies. Staff is scheduled to present the pilot and recruitment efforts at the November 17, 2020, CFOC meeting.
- Training for MD&A Pilot Agencies: Staff will provide training for MD&A pilot agencies and will be fully engaged one on one with each agency and/or in group workshops to assist with developing the sample MD&As.
- User Focus Groups: Members agreed that staff should engage user focus groups after the pilots complete their sample MD&As to determine if the information is concise, relevant, easily understood, and useful. Populations identified for user focus groups to date are graduate students in finance and public policy and relevant congressional committees. Staff will also reach out to the Association of Government Accountants (AGA) Certificate of Excellence in Accountability Reporting (CEAR) for help to recruit users for focus groups.
Briefing materials – Tab E
August 26-27, 2020
At the August meeting, members began work on the MD&A vision framework (the framework). The framework was in response to members’ request to develop a cohesive vision of the MD&A without duplicative language found in the MD&A objectives. The framework will be used for the MD&A pilot to begin in early 2021. After an in-depth discussion about each section, members agreed on the following draft MD&A vision framework:
MD&A should provide a concise summary of the mission and organization, financial activities and results, and performance accomplishments and challenges to help users understand the financial position and condition of the reporting entity:
- by analyzing reasons for significant changes to financial statement balances during the reporting period and significant performance and financial trends;
- by discussing ongoing, current, and planned actions to address
- significant ongoing, current and prospective challenges and/or risks that could significantly affect financial statement balances, budgetary resources, and performance objectives in the future; and
- conditions, such as those related to systems and controls, that could affect the ability to produce reliable financial information; and
- by including hyperlinks to digital materials, such as, organizational charts, mandated legislative performance information, and other sections of the financial report with more in-depth information.
Members agreed that staff should continue to work on a strong lead-in section that summarizes the MD&A vision about how funding received contributed to results achieved. Members emphasized that one of the major goals of the MD&A project is to streamline MD&A and unburden preparers.
Briefing materials – TAB F
June 24 – 25, 2020
At the June 2020 Board meeting, members completed work on identifying MD&A objectives according to the reporting objectives framework in Statement of Federal Financial Accounting Concepts 1, Objectives of Federal Financial Reporting. This exercise helped them to determine what information to include in an MD&A proposal. To complete this exercise, the Board reviewed three objectives at the June 2020 meeting: two stewardship objectives (one for financial position and one for financial condition) and one system and controls objective.
The following catalogs the MD&A objectives the Board has identified as general (G) or for the reporting objectives: budgetary integrity (BI), operating performance (OP), stewardship (ST), and systems and control (S&C).
|G-1||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.||Aug 2019|
|BI-1||MD&A should concisely explain financing resources and the sources and status of budgetary resources.||Aug 2019|
|BI-2||MD&A should concisely explain why significant changes in budgetary and/or financing resources were needed during the reporting period.||Aug 2019|
|OP-1||MD&A should concisely explain if significant costs contributed to agency performance.||Oct 2019|
|OP-2||MD&A should concisely explain reasons for significant changes in net cost from the prior year and any significant trends cost over multiple years.||Oct 2019
|OP-3||MD&A should provide an integrated discussion and analysis of the entity’s mission, organization, budget, cost, and performance, for the entity’s significant major program investments and the entity as a whole, including what types of resources the entity used and what the entity achieved during the reporting period.||Feb 2020|
|OP-4||MD&A should provide a concise/balanced discussion/summary of significant financial and non-financial operating performance information, including electronic references to legislative performance framework documents, such as GPRAMA reporting, for the entity’s major program investments and the entity as a whole.||Feb 2020|
|ST-1||MD&A should concisely explain reasons for significant changes in assets, liabilities, costs, and/or revenues from the prior year and any significant trends.||June 2020|
|ST-2||MD&A should concisely describe planned agency actions to address current and prospective mission-related issues, challenges, and/or risks that could significantly affect assets, liabilities, costs, revenues, and budgetary resources.||June 2020|
|S&C-1||MD&A should concisely describe the conditions of data, systems, and controls that affect the ability to produce reliable financial information.||June 2020|
|S&C NOTE||A number of members recommended that MD&A should also include a summary discussion about ongoing and planned actions to address non-compliance and control weaknesses that may be causing material weaknesses. This includes references to other sections that have a more in depth discussion of those items.|
Members did not have time to agree on the wording. Therefore, staff will include these draft objectives in the MD&A vision framework for discussion at a future meeting.
Next steps are for staff to consolidate these objectives into an MD&A vision framework in preparation for the agency pilot. The pilot will determine how well agencies understand and can produce an updated MD&A according to the MD&A vision framework. The pilot will then help members to develop the proposed standards and determine what terms to define.
Briefing materials – TAB F
February 26-27, 2020
At the February 2020 meeting, members approved the technical plan with one change—to implement a task force earlier to help develop MD&A standards and the pilot. Task force members will be selected in the next six months. If you are interested, please contact Ms. Gilliam at the contact information below.
To support developing updated MD&A standards, members completed identifying the MD&A objectives for operating performance and tentatively agreed on preliminary language.
Staff plans to address the stewardship and systems and control objectives during the April 2020 meeting. Upon identification of all objectives, staff will curate a conceptual framework to help the Board develop updated MD&A standards.
Issue Paper for February 26-27, 2020 – Tab C (PDF)
December 17-18, 2019
At the December 2019 meeting, the Board discussed the interrelationship between the reporting model, note disclosures, and MD&A projects. Please see the reporting model phase II section for a detailed discussion on the session.
Issue Paper for December 17-18, 2019 – Tab F (PDF)
October 23-24, 2019
At the October 2019 meeting, members began developing management’s discussion and analysis (MD&A) objectives for operating performance and agreed on the following:
- MD&A should concisely explain how significant costs contributed to agency performance.
- MD&A should concisely explain reasons for significant changes in components of net cost for the prior year and any significant related trends and costs over multiple years.
Members will continue identifying additional operating performance objectives at future meetings.
Issue Paper for October 23-24, 2019 – Tab G (PDF)
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)