State and Local Governments: Key Insights for Implementing GASB 103

Organizations governed by the Governmental Accounting Standards Board (GASB) should start preparing for new financial reporting rules.

GASB Statement No. 103, Financial Reporting Model Improvements, is effective for fiscal years starting after June 15, 2025, and is the most significant update to governmental financial reporting since GASB 34 was issued more than 25 years ago.

The new rule introduces major updates to the governmental financial reporting model to improve transparency, comparability, and decision-usefulness. Key areas impacted include:

• Management’s discussion and analysis (MD&A)
• Unusual or infrequent items
• Proprietary fund statements
• Major component unit presentation
• Budgetary comparison information

How GASB Statement 103 changes affect state and local government

Management’s discussion and analysis

GASB 103 requires the MD&A be limited to:

1. Overview of the financial statements, including relationships of the statements to each other.
2. Financial summary in a condensed format comparing the current year to the prior year.
3. 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.
4. 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
5. Currently known facts, decisions, or conditions should be described if expected to have a significant effect on the financial position or are expected to produce significant differences from the results of operations of the current year.

Information not related to the required topics should not 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:

• 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 adding 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 inter-fund transfers bolstering the operating budget rather than fund-specific capital projects.
• Subsidies that are capital in nature are reported in the other nonoperating revenues and expenses section.

GASB 103 defines operating revenues and expenses as revenues and expenses other than nonoperating revenues and expenses. Nonoperating revenues and expenses includes:

• Subsidies received and provided
• Contributions to permanent and term endowments
• Revenues and expenses related to financing
• Resources from disposing 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 make sure they are in line 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 statement readability. If readability is reduced, combining statements of major component units should be presented after the fund financial statements. Presenting 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.

There are two additional changes in the requirements for budgetary comparison schedules:

1.  An additional column is required, showing the change from the original budget to the final budget.
2. 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.

How CLA can help with adopting 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.

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