Governmental Accounting and the Md&A Section: An Exploratory Study of Understandability

Abstract

This exploratory research applied an experimental design to gain insight into the success by which well-crafted MD&As allow laymen to extract meaningful information about a government's financial performance. The findings indicate that laymen generally perceive high quality MD&As to be understandable and that this understandability is contingent on the extent to which the MD&A follows the spirit of a high quality MD&A. The results of the study also indicate that well-crafted MD&As are relatively successful in transmitting key information about a government's financial performance to laymen, regardless of their prior exposure to financial statement analysis. The findings of the study are important because they show that well-crafted MD&As can play an important role in allowing a broader audience to directly access information about a government's financial performance. However, they also raise some concerns about the success by which high quality MD&As are able to communicate content specific information to laymen.