GASB 103, Financial Reporting Model Improvements

On May 28, 2024, the Governmental Accounting Standards Board (GASB) issued GASB Statement No. 103, Financial Reporting Model Improvements (GASB 103 or Statement). GASB 103 addresses improvements to key components of the financial reporting model, the purposes of which are to enhance the effectiveness of the financial reporting model in providing information that is essential for decision making and assessing a government’s accountability and addressing certain application issues identified through pre-agenda research conducted by the GASB. The requirements of GASB 103 are effective for fiscal years beginning after June 15, 2025.

Background

In June 2024, GASB Statement No. 34, Basic Financial Statements — and Management’s Discussion and Analysis — for State and Local Governments (GASB 34), celebrated its 25th anniversary as the preeminent standard for state and local government financial reporting. The outsized influence of GASB 34 on the financial reporting model, combined with the amount of time that has passed since its effective dates, led the GASB to reexamine the existing financial reporting model and its effectiveness in achieving the objectives of financial reporting. 

The GASB added the reexamination of the existing financial reporting model as a pre-agenda research activity in August 2013. The GASB’s research efforts over the following years included review of government financial reports, roundtables with and surveys of various stakeholders, and review of responses to an invitation to comment. In September 2018, the GASB issued a Preliminary Views, Financial Reporting Model Improvements document, addressing recognition concepts and their application to various elements of financial reporting. In June 2020, after review of the responses to the Preliminary Views, the GASB issued an Exposure Draft, Financial Reporting Model Improvements. Using the feedback from the Exposure Draft and additional interview research conducted with users, as well as feedback from the Governmental Accounting Standards Advisory Council, the GASB drafted GASB 103.

Key Considerations

The targeted improvements contained in the Statement establish or modify existing accounting and financial reporting requirements related to: management’s discussion and analysis; 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; and financial trends information in the statistical section.

Management’s Discussion and Analysis

No substantial changes were made to the management’s discussion and analysis. Modifications were made to improve the analysis included in this section and provide details about the items that should be discussed as currently known facts, decisions or conditions expected to have a significant financial effect in the subsequent period. Example items include, among others, trends in relevant economic and demographic data, relevant factors used to develop the subsequent year’s budget, actions taken by the government in relation to long-term liabilities and actions other parties have taken that will affect the government in a subsequent period, such as new legislation or regulations.

Unusual or Infrequent Items

The Statement eliminates separate presentation of extraordinary and special items. Under the Statement, applicable items will either be identified as unusual or infrequent, or both. Unusual or infrequent items are transactions and other events that are unusual in nature or infrequent in occurrence, as defined in GASB Statement 62.

Presentation of the Proprietary Fund Statement of Revenues, Expenses and Changes in Fund Net Position

The statement of revenues, expenses and changes in fund net position should distinguish between operating and nonoperating revenues and expenses, as well as separately report noncapital subsidies (a type of nonoperating revenue and expense). Subsidies are defined as: 

• Resources received from another party or fund (1) for which the proprietary fund does not provide goods and services to and (2) that directly or indirectly keep the proprietary fund’s current or future fees and charges lower than they would be otherwise 
• Resources provided to another party or fund (1) for which the other party or fund does not provide goods and services to the proprietary fund and (2) that are recoverable through the proprietary fund’s current or future pricing policies 
• All other transfers 
  
  

The Statement defines operating revenues and expenses as revenue and expenses other than nonoperating revenues and expenses. Nonoperating revenues and expenses are:

• 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 
  
  

Revenues or expenses that otherwise would be classified as nonoperating in most proprietary fund financial statements should be classified as operating if those transactions constitute the proprietary fund’s principal ongoing operations.  

Major Component Unit Information

Unless doing so reduces the readability of the statements, governments should present each major component unit separately in the reporting entity’s statements of net position and activities. Combining statements of major component units should be included in the reporting entity’s basic financial statements after the fund financial statements if each major component unit is not reported separately.  

Budgetary Comparison Information

Budgetary comparison schedules should be presented as required supplementary information (RSI) for the general fund and each major special revenue fund that has a legally adopted annual budget. Governments can no longer opt to report budgetary comparison information as a basic financial statement, which was previously allowed under GASB 34. An explanation of significant variations between original and final budget amounts and final budget amounts and actual results is required to be presented in the notes to the RSI.

Financial Trends Information in the Statistical Section

In the statistical section of separately issued financial reports, governments engaged only in business-type activities or only in business-type activities and fiduciary activities should present revenues by major source, distinguishing between operating, noncapital subsidy and other nonoperating revenues and expenses.

Items to Communicate to Those Charged with Governance

The requirements of GASB 103 should improve the effectiveness of the financial statements in communicating essential information to financial statement users. The new definition of nonoperating revenues and expenses, for example, will greatly reduce diversity in practice among governments and enable users to better evaluate the results from operations for proprietary funds. The replacing of extraordinary items and special items with unusual or infrequent items should provide more value to stakeholders as the definition of “unusual in nature” and “infrequent in occurrence” is consistent with GASB 62. Changes to management’s discussion and analysis will benefit users through the avoidance of unnecessary duplication and “boilerplate” discussion and placing a greater emphasis on providing a detailed analysis of a government’s financial activities. 

Effective Date

The requirements of the Statement are effective for fiscal years beginning after June 15, 2025, and all reporting periods thereafter. Earlier application is encouraged. If a primary government chooses to implement the Statement early, all component units should implement the Statement in the same year.