From a normative perspective, providing readily understood and comprehensive financial disclosure should be a given in a democracy where citizens provide funds for government. The recent adoption of an accrual-based accounting model—viewed by many as a cornerstone of the New Public Management—only heightens this concern in that adequate reporting must address intergenerational costs and benefits of current services. Professional associations such as the Association of Governmental Accountants, Government Finance Officers Association, and Governmental Accounting Standards Board endorse and reward the use of transparent accounting and reporting that should be comprehensible to audiences beyond traditional users such as auditors, bond raters, and managers. The relatively recent promulgation (1999) of Governmental Accounting Standards Board (GASB) Statement 34 which requires state and local governments to include a Management Discussion and Analysis (MD&A) in their comprehensive annual financial reports (CAFRs) exemplifies this concern for enhanced financial transparency.

Accountability takes on many forms: quantity and quality of services provided, the equity of its delivery, and thorough, accurate portrayal of resources consumed in this provision.  The import of the MD&A from the private sector should foster heightened accountability by placing government expenditures in a broader social and economic context.  This paper explores how the MD&A is being deployed to enhance a reader’s awareness of how government revenues and expenditures reflect ongoing social trends and operational “drivers” in the environment.  In so doing, we also examine how MD&A quality relates to the broader literature on the determinants of financial disclosure, and what scholars may need to ask in understanding disclosure quality.

We find that fiscal condition affects the willingness of local governments to disclose financial information. This is especially true for governments enjoying greater cash solvency. Moreover, public managers tend to be more dicslosive in larger and older cities, as well as in municipalities with council-manager form of government.  The study offers novel insights about the willingness of local governments to disclose fiscal information and seeks to better understand the factors that contribute to a more open, transparent, and accountable public administration.