Key insights
- GASB Statement No. 103 marks the most significant update to governmental financial reporting since 1999 and requires additional work and documentation.
- Governments may need to begin the management's discussion and analysis sooner and document budget variance explanations throughout the year.
- Governments also should evaluate operating and non-operating classifications across funds and periods and identify subsidies.
Get experienced assistance adopting the new GASB rules.
GASB 103 requires state and local government finance teams to do more than update financial statement presentation.
Governments may need to begin the management’s discussion and analysis earlier, coordinate more closely with operational departments, and document judgments involving significant changes, budget variances, and subsidies.
With the standard now effective, understanding where implementation requires the most time and judgment can help governments manage year-end workload, reduce the risk of reporting delays, and prepare for audit questions. Discover the changes and learn lessons emerging from initial implementation.
How GASB Statement 103 changes affect state and local government
Management’s discussion and analysis
GASB 103 requires the MD&A be limited to:
- Overview of the financial statements including relationships of the statements to each other.
- Financial summary in a condensed format comparing the current year to the prior year.
- Detailed analyses of financial position and results of operations summarizing significant changes. The analysis should explain why those changes occurred. Significant policy changes and important economic factors impacting results should also be discussed.
- Significant capital asset and long-term financing activity. This should also address policy changes and economic factors relevant to capital asset activity and long-term financing activity.
- Currently known facts, decisions, or conditions should be described if expected to have a significant effect on the financial position or if expected to produce significant differences from the results of operations of the current year.
Information not related to the required topics shouldn’t be included in the MD&A. The analysis should avoid unnecessary duplication and boilerplate discussions by presenting only the most relevant information.
Unusual or infrequent items
GASB 103 replaces special and extraordinary items with unusual or infrequent items, which must be shown separately on the financial statements.
Items should be classified as either unusual, infrequent, or both. Definitions are as follows:
Unusual in nature
The underlying event or transaction has a high degree of abnormality and is clearly unrelated to the typical activities of the government.
Infrequent in occurrence
The underlying event or transaction is not reasonably expected to recur in the foreseeable future.
All inflows and outflows related to each unusual or infrequent item should be presented separately and not netted.
Proprietary fund statements
One of the major changes is the addition of the noncapital subsidies category to the statement of revenues, expenses, and changes in net position.
- Noncapital subsidies are nonexchange financial assistance intended to support operations, which means they directly or indirectly keep current or future fees lower than they otherwise would be. These subsidies can take the form of grants, appropriations, or interfund transfers supporting operations rather than fund specific capital projects.
- Subsidies that are capital in nature are reported in the other non-operating revenues and expenses section.
GASB 103 defines operating revenues and expenses as revenues and expenses other than non-operating revenues and expenses. Non-operating revenues and expenses include:
- 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
All other revenues and expenses are considered operating.
Governments should review their financial statement account classifications to evaluate whether they align with the new guidance and review resource flows to determine what subsidies they have.
Major component unit information
Major component unit information is now required to be presented separately in the Statement of Net Position and Statement of Activities if it doesn’t reduce readability of the statements.
If readability is reduced, combining statements of major component units should be presented after the fund financial statements. Presentation of major component unit information in the notes to the financial statements is no longer allowed.
Budgetary comparison schedules
Reporting budgetary comparison information as a basic financial statement is no longer allowed. Under GASB 103, the schedule is required to be presented as required supplementary information (RSI).
There are two additional changes in the requirements for budgetary comparison schedules:
- An additional column is required, showing the change from the original budget to the final budget.
- Governments must also include explanatory notes to the schedule to explain any significant variances between the original and final budget and between the final budget and actual results.
GASB 103 affects more than local governments. Explore its impact on higher education, along with changes related to GASB 104.
What governments are seeing in GASB 103 implementation
As governments begin applying GASB 103 to fiscal years ending June 30, 2026, early implementation experience has highlighted several practical considerations.
The standard is proving to be more than a financial statement formatting exercise. Significant effort may involve the analysis, policies, and documentation supporting what appears on the face of the statements, not the presentation changes themselves.
Early implementation efforts highlight several practical considerations:
Beginning the MD&A earlier
Drafting the MD&A requires coordination beyond the finance department because explanations should identify why significant balances and results changed, not merely describe the amount of the change.
Two requirements may warrant particular attention in practice:
- The aggregate discussion of non-major funds is eliminated in favor of significant changes within each major fund
- Currently known facts, decisions, or conditions are evaluated as of the financial statement issuance date rather than fiscal year-end, which extends the information gathering window past the close
A practical first step is to recast the prior-year MD&A using the GASB 103 structure. This can help identify missing explanations, duplicated content, and information needed from operational departments before the reporting deadline.
Documenting budget variance explanations throughout the year
GASB 103 doesn’t prescribe a quantitative threshold for significance, so governments should establish and consistently apply a reasonable approach for identifying variances requiring explanation.
Governments documenting the reasons for budget amendments and actual-to-budget variances during the year may find it easier to address this requirement than those reconstructing explanations after the close.
Reviewing proprietary fund classifications and resource flows
One of the more complex aspects of GASB 103 implementation is identifying subsidies and distinguishing them from operating revenues. Governments should evaluate operating and non-operating classifications across funds and periods and identify subsidies, including whether subsidies are capital or noncapital in nature.
Following the issuance of GASB Statement No. 103, GASB launched its 2026 Implementation Guidance Update project focused exclusively on subsidies. The project was developed in response to implementation questions related to identifying and reporting subsidies within proprietary funds and business-type activities.
The proposed guidance suggests subsidy classification may require significant judgment and highlights the importance of evaluating resource flows and documenting operating versus non-operating revenue classifications as governments implement the new financial reporting model.
GASB 103 places added emphasis on the analysis, policies, and documentation supporting the statements. Governments starting the MD&A earlier and establishing written policies for significance thresholds and subsidy classifications before beginning statement preparation can help.
How CLA can help with the adoption of GASB 103
GASB 103 marks a major change in government financial reporting. Whether you need to better understand a specific provision in the standard or need direct assistance with adoption, CLA can help.