4 Reporting
4.7 Required Supplementary Information (RSI)
4.7.1 Management’s Discussion and Analysis
The management discussion and analysis (MD&A) should provide the users with an introductory narrative, overview and analysis of the basic financial statements. Although it is required supplementary information, it should be presented first – before the basic financial statements. It introduces the basic financial statements and notes and is meant to guide the readers through those statements and notes.
4.7.40 The MD&A should be written by financial managers, the controllers, finance directors, etc. It should be objective and easily readable. The objectivity is a result of being solely based on the information that comes from the basic financial statements and facts that are currently known [1] to the managers. It should discuss both: the positive and negative outcomes of the government’s operations. The governments are encouraged to use charts, graphs, and tables to enhance the understandability of the MD&A.
4.7.50 The MD&A should focus on the primary government. The decision whether to address matters related to component units depends on the size of a particular component unit (in comparison with other discretely presented component units) and the nature of its relationship with the primary government. Any discussion in the MD&A involving both the primary government and its discretely presented component units must be distinguishable between the two.
4.7.60 The content includes a required set of information that the government must address. Since the MD&A is a required portion of the RSI, it should not contain additional topics that are not specified here. However, the government is free to provide whatever level of detail it feels is appropriate in addressing each topic.
Discussion of the Basic Financial Statements
4.7.70 The discussion portion of the MD&A should describe the financial statements and the significant differences in the kinds of information each statement provides. It should focus on the relationship between governmental funds and governmental activities.
Condensed Comparative Financial Data
4.7.80 The MD&A should provide condensed financial statements derived from the government-wide financial statements for both the current and the prior fiscal period. The following is the requirement of comparative data need for the MD&A:
- Total assets, distinguishing between capital and other assets
- Total deferred outflows of resources
- Total liabilities, distinguishing between long-term liabilities and other liabilities
- Total deferred inflows of resources
- Total net position, distinguishing between amounts of net investment in capital assets, restricted amounts, and unrestricted amounts
- Program revenues, by major source
- General revenues, by major source
- Total revenues
- Program expenses, at minimum by function
- Total expenses
- Excess (deficiency) before contributions to term and permanent endowment or permanent fund principal, special and extraordinary items and transfers
- Contributions
- Special and extraordinary items
- Transfers
- Change in net position
- Ending net position
4.7.90 The above information should be presented in the form of condensed financial statements. The government may use graphs and charts to supplement, or elaborate on those statements, but not in place of them.
Overall Analysis of Financial Position and Result of Operations
4.7.100 The MD&A should discuss and analyze the government’s financial position and results of operations. This discussion and analysis needs to address whether the government’s overall financial position has improved or deteriorated. The MD&A should provide reasons for the significant changes in financial position, not just changes in their size or percentage of change. The overall analysis discussion needs to address separately the governmental and business-type activities. This discussion should emphasize the current fiscal period.
Fund Analysis
4.7.110 The fund analysis focuses on the analysis of significant balances and operations of individual major funds. The discussion should emphasize the reasons for significant changes in fund balances (government funds) or fund net position (proprietary funds). Additional information should be provided on any significant limitation on the future use of fund resources.
Budget Variances in the General Fund
4.7.120 The MD&A should address, on a budgetary basis, the significant differences between:
- The original budget for the general fund and the final amended budget
- The final amended budget for the general fund and the actual amounts
4.7.130 The analysis should give reasons for variances if they significantly affect either future services or liquidity.
Capital Asset and Long-Term Debt Activity
4.7.140 The MD&A should describe significant changes in:
- Capital assets
- Long-term debt
- Commitments for capital expenditures
- Debt limitations that could affect the financing of planned facilities or services
4.7.150 The MD&A is not intended to repeat information provided in the notes, but should be summarized and references made to the more detailed information provided in the notes.
Infrastructure
4.7.160 Governments that elect the use the modified approach to infrastructure reporting should discuss all of the following in the MD&A:
- Significant changes in the condition levels of infrastructure assets
- How current condition levels compare with target condition levels established by the government
- Significant differences between the amount estimated to be necessary for maintaining and preserving infrastructure assets at target condition levels and the actual amounts of expense incurred for the purpose during the current fiscal period
Other Potentially Significant Matters
4.7.170 The MD&A should also address any currently known facts, decisions, or conditions that are expected to have a significant effect on financial position. This discussion should be based on events or decisions that have already occurred, or have been enacted, adopted, agreed upon, or contracted. In some instances, issues discussed here will also be disclosed in the notes to financial statements as subsequent events or contingencies. The discussion should also address the effect on governmental and business-type activities separately.
4.7.180 Governmental activities and business-type activities should be discussed separately. Examples of types of situations for such reporting are:
- Award and acceptance of a major grant
- Adjudication of significant lawsuit
- Reassessment of taxable property
- Completion of an agreement to locate a major manufacturing plant in a city
- A flood that caused significant damage to a governments infrastructure
- A renegotiated labor contract with government employees
Footnotes:
[1] Currently known is interpreted as known by the managers as of the date of the auditor’s end of audit fieldwork.