Examining the Usability of the Comprehensive Annual Financial Report’s MD&A using Textual Analytics

The Transformation of Government Accountability and Reporting

“…The unintended consequence of a comprehensive disclosure to meet various stakeholders' needs is that the reports tend to be long and complex (Chan 2001), which would raise concerns over the usefulness of the governments' annual financial report (Cournoyer 2012). Researchers have been evaluating the disclosure quality by assessing the readability and similarity of the content as a way to measure the usefulness of the government financial reporting (Wang et al 2020;Yusuf and Jordan 2017;Guo et al 2009). Wang et al (2020) analyze the usability of the MD&A section of the CAFRs issued by New York State from 2015 to 2019.…”

“…Researchers have been evaluating the disclosure quality by assessing the readability and similarity of the content as a way to measure the usefulness of the government financial reporting (Wang et al 2020;Yusuf and Jordan 2017;Guo et al 2009). Wang et al (2020) analyze the usability of the MD&A section of the CAFRs issued by New York State from 2015 to 2019. The study finds that the MD&A disclosures over the period have low readability and high similarity, which means that primary users have difficulties understanding the content, and the variation of the MD&A content over the examined period is low (Wang et al 2020).…”

“…Wang et al (2020) analyze the usability of the MD&A section of the CAFRs issued by New York State from 2015 to 2019. The study finds that the MD&A disclosures over the period have low readability and high similarity, which means that primary users have difficulties understanding the content, and the variation of the MD&A content over the examined period is low (Wang et al 2020). Guo et al (2009) assess the disclosure quality of the MD&As from 43 large cities in Florida.…”

“…Government reporting often contains textual information, and NLP can be used to analyze such information. For example, Wang et al (2020) use NLP to analyze the MD&A section of governmental reporting to examine its readability and informativeness. Duan, Hu, Yoon, and Vasarhelyi (2021) analyze CAFR reports from New York, New Jersey, and California in terms of their compliance to GAGAS and their readability and informativeness.…”