To improve the quality of the financial reporting model, the Governmental Accounting Standards Board (GASB) issued Statement 103, Financial Reporting Model Improvements, which amends certain key components of the financial reporting model to enhance the effectiveness of governmental financial reports.
The requirements apply to all state and local governments financial statements and are effective for fiscal years beginning after June 15, 2025, and all reporting periods thereafter.
The amended guidance in Statement 103 supersedes Statement 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, and addresses opportunities for improvement as summarized below.
What Changes with the Amended Guidance
The targeted improvements in Statement 103 establish or modify existing accounting and financial reporting requirements related to:
- Management’s discussion and analysis (MD&A)
- Unusual or infrequent items, previously known as extraordinary and special items
- Presentation of the proprietary fund statement of revenues, expenses, and changes in fund net position
- Major component unit information
- Budgetary comparison information
Management’s Discussion and Analysis
MD&A provides an objective and easily readable analysis of the government’s financial activities based on currently known facts, decisions, or conditions and presents comparisons between the current year and the prior year.
Statement 103 continues to require that the basic financial statements be preceded by MD&A. It also continues the requirement to distinguish between the primary government and its discretely presented component units.
In addition, the amendments in Statement 103 emphasize that the information presented in MD&A be limited to the following five topics:
- Overview of the Financial Statements
- Financial Summary
- Detailed Analyses
- Significant Capital Asset and Long-Term Financing Activity
- Currently Known Facts, Decisions, or Conditions
To improve the quality of the analysis of changes from the prior year, Statement 103 requires a detailed explanation as to why balances and results of operations changed rather than simply presenting the amounts or percentages by which they changed.
MD&A should focus on relevant information of the primary government, and governments are encouraged to avoid unnecessary duplication by not repeating explanations that may be relevant to multiple sections.
Unusual or Infrequent Items
To clarify the requirement to separately present unusual or infrequent items, Statement 103 describes unusual or infrequent items as transactions and other events that are either unusual in nature or infrequent in occurrence. This is consistent with the definitions under Statement 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements.
Statement 103 requires governments to display the inflows and outflows related to each unusual or infrequent item separately as the last presented flow of resources prior to the net change in resource flows in the government-wide, governmental fund, and proprietary fund statements of resource flows.
Presentation of Proprietary Fund Statement
Statement 103 continues to require that the proprietary fund statement of revenues, expenses, and changes in fund net position should distinguish between operating and nonoperating revenues and expenses. However, to improve comparability, Statement 103 replaces accounting policies that vary from government to government by defining operating revenues and expenses and nonoperating revenues and expenses.
The amendments define operating revenues and expenses as revenues and expenses other than nonoperating revenues and expenses.
Nonoperating revenues and expenses are defined to include the following:
- Subsidies received and provided
- Contributions to permanent and term endowments
- Revenues and expenses related to financing
- Resources from the disposal of capital assets and inventory
- Investment income and expenses
Statement 103 further defines subsidies as:
- Resources received from another party or fund for which the proprietary fund doesn’t provide goods or services to and that directly or indirectly keep the proprietary fund’s current or future fees and charges lower that they would be otherwise
- Resources provided to another party or fund for which the other party or fund doesn’t provides goods or services to the proprietary fund and that are recoverable through the proprietary fund’s current or future pricing policies
- All other transfers
In addition to the subtotals currently required in a proprietary fund statement of revenues, expenses, and changes in fund net position, Statement 103 requires that a subtotal for operating income (loss) and noncapital subsidies be presented before reporting other nonoperating revenues and expenses.
Major Component Unit Information
To further improve comparability, Statement 103 requires governments to present each major component unit separately in the reporting entity’s statement of net position and statement of activities if it doesn’t reduce the readability of the statements. If the readability would be reduced, combining statements of major component units should be presented after the fund financial statements.
Budgetary Comparison Information
To provide more useful information for making decisions and assessing accountability, Statement 103 requires governments to present budgetary comparison information using a single method of communication—required supplementary information.
The amendments also require governments to present variances between original and final budget amounts and variances between final budget and actual amounts.
An explanation of significant variances is required to be presented in notes to required supplementary information.
Effective Dates
The requirements are effective for fiscal years beginning after June 15, 2025, and all reporting periods thereafter.
Earlier application is encouraged. If a primary government chooses early application, all component units should implement the amended guidance in the same year, subject to the provisions of paragraph 59 of Statement 14, The Financial Reporting Entity.
Changes adopted at transition to conform to the amended guidance should be reported as a change in accounting principle in accordance with Statement 100, Accounting Changes and Error Corrections, including the related display and disclosure requirements.
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