An Analysis Of The Readability Of The MD&As Of Small, Medium, & Large Revenue Generating Cities

Abstract

Studies assessing the annual reports of publicly held corporations have shown mixed results in regard to the readability levels of those reports.  Recently, the Governmental Accounting Standards Board adopted GASB 33, 34, and 35 in which specific guidelines are outlined for the reporting of governmental entities.  Are the Comprehensive Annual Financial Reports (annual reports) of the governmental entities understandable to the average user?

This study argues that the Management’s Discussion and Analysis, the summary portion of the governmental annual report, is not understandable to the average reader.  The sample was equally divided among small, medium, and large revenue-generating cities that were early adopters of GASB 34.   Readability was determined using the Flesch-Kincaid readability formula from the GRAMMATIK II software.  The results show that the Management’s Discussion and Analyses are understandable to the average twelfth grade reader.  Furthermore, the writer’s style and sentence structure remained at a level consistent with the readability level.