Management’s Discussion and Analysis (MD&A)
FASAB Contact: Robin Gilliam, firstname.lastname@example.org, 202-512-7356
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)
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
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)