GASB 103 Update: A Practical Guide for State and Local Governments

The landscape of governmental financial reporting is undergoing its most significant transformation in 25 years. GASB Statement No. 34 celebrated its 25th anniversary in June 2024, and that milestone -- combined with a decade of stakeholder research, roundtables, surveys, and exposure drafts dating back to 2013 -- culminated in the issuance of GASB Statement No. 103, Financial Reporting Model Improvements, on May 28, 2024.

GASB 103 introduces targeted improvements across several core areas of the financial reporting model, with the goals of enhancing decision-making, improving accountability, and increasing comparability across governments. Here is what you need to know.

Effective Dates at a Glance

GASB 103 is effective for fiscal years beginning after June 15, 2025, which includes fiscal years ending June 30, 2026.

Key Changes and Requirements

1. Management's Discussion and Analysis: Moving Beyond Boilerplate

Generic language in the MD&A is no longer sufficient. GASB 103 emphasizes clear, objective, and analytical explanations written for users who may not have detailed knowledge of governmental accounting. It is no longer enough to state that expenditures increased due to “general government support and employee benefits”—governments are expected to explain the underlying reasons for those changes. For example, a newly settled collective bargaining agreement that increased the entity’s share of medical insurance costs.

GASB 103 also introduces a more structured framework by organizing MD&A into five required components:

• Overview of the Financial Statements – Provides a brief introduction to the basic financial statements and how they are structured. While generally consistent with prior guidance under GASB 34, GASB 103 formalizes this as a distinct component of the MD&A.
• Financial Summary – Presents condensed financial information, including key balances and results of operations, to provide a high-level overview of the government’s financial position. GASB 103 formalizes this as a required section and provides more explicit structure compared to prior guidance.
• Detailed Analyses – Explains significant changes in financial balances and results of operations, with an emphasis on why those changes occurred. GASB 103 places greater focus on analytical, entity-specific explanations and discourages boilerplate or purely descriptive language.
• Significant Capital Asset and Long-Term Debt Financing Activity – Describes major capital asset additions, disposals, and financing activities, as well as changes in long-term debt. GASB 103 reinforces the expectation that governments focus on significant activity and clearly explain its impact on financial position and results.
• Currently Known Facts, Decisions, or Conditions – Highlights known events or conditions that are expected to have a significant effect on future financial results (e.g., economic trends, budget assumptions, new legislation, or funding changes). GASB 103 strengthens this requirement by emphasizing forward-looking information that is both relevant and specific to the government.

Practical tip: Keep a running log of significant events throughout the year -- vacancies, unusual expenditures, policy changes. Documenting as you go will make completing the MD&A far more efficient and produce a more useful document for your stakeholders.

2. Unusual or Infrequent Items: A New Classification System

GASB 103 eliminates extraordinary items and special items, replacing them with two new categories:

• Unusual items: Highly abnormal and clearly unrelated to the entity's typical activities. Examples include capital asset impairments, the sale of a significant asset, or a natural disaster uncommon to the entity's location (such as an earthquake in the northeast).
• Infrequent items: Not reasonably expected to recur. Examples include legal settlements, large donations, or a natural disaster more typical to the entity's region (such as a hurricane in the northeast).

These items must be presented separately before the change in fund balance or net position, reported gross (not net), and represent the last presented flows of resources prior to the net change. The requirement applies across government-wide, governmental fund, and proprietary fund statements. Footnotes must identify the related program, function, or activity and whether the item was within management's control. If a qualifying transaction arises during the year, track all associated revenues and expenditures immediately.

3. Proprietary Fund Statement of Revenues, Expenses, and Changes in Fund Net Position

GASB 103 addresses longstanding diversity in practice around how governments classify operating and nonoperating items. The standard formally defines nonoperating revenues and expenses as:

• Subsidies received and provided (including grants and interfund transfers)
• 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 generally are reported as operating, unless they meet the definition of nonoperating or do not relate to the fund’s principal ongoing operations. One exception: items that would normally be nonoperating should be classified as operating if they constitute the fund's principal ongoing operations -- for example, interest revenue in a clean-energy loan fund.

The most significant new addition is the noncapital subsidies category. A subtotal for operating income (loss) and noncapital subsidies must appear before other nonoperating items. Subsidies are resources received from another party or fund for which the proprietary fund provides no goods or services, and that keep the fund's fees and charges lower than they would otherwise be -- or resources provided to another party that are recoverable through future pricing. Certain transfers may meet the definition of subsidies if they are provided to support operations; however, not all transfers will qualify and should be evaluated based on their substance.

If your entity transfers funds into a proprietary fund, document whether each transfer is for a capital project or to subsidize operations -- starting in the year of implementation. GASB 103 Appendix C includes illustrative examples to help visualize these requirements.

4. Major Component Unit Presentation: Enhanced Transparency

The option to present condensed financial statements of major component units in the notes has been eliminated. Governments now have two options:

• Option 1: Present each major component unit separately in the statements of net position and revenues, expenses, and changes in net position -- if it does not reduce readability.
• Option 2: If separate presentation would reduce readability, use combining statements placed after the fund financial statements in the basic financial statements.

Make sure your component units are aware of this change. The primary government and all component units must implement GASB 103 in the same reporting period.

5. Budgetary Comparison Information: Standardization and Enhanced Disclosure

Budgetary comparison schedules must now be presented as required supplementary information (RSI) -- the option to present them as a basic financial statement has been eliminated. Two new content requirements apply:

• A new column showing the variance between original and final budget amounts, in addition to the existing variance between final budget and actual results.
• Notes to RSI explaining significant variances between original and final budget, and between final budget and actual results.

6. Financial Trends Information in the Statistical Section

Governments engaged only in business-type activities -- or only in business-type and fiduciary activities -- must present revenues by major source in the statistical section, distinguishing between operating revenues, noncapital subsidy revenues, and other nonoperating revenues. This requirement is consistent with the new proprietary fund statement requirements.

Conducting a Readiness Assessment

• MD&A practices: Are your narratives specific and analytical, or do they rely on boilerplate? Start shifting documentation habits now.
• Budgetary processes: Does your schedule include the new column? Have you set a significance threshold?
• Proprietary fund classifications: Are operating and nonoperating items consistent with the new definitions? Have you identified transfers that may qualify as subsidies?

Early communication with your auditor about implementation plans and any complex transactions will help avoid surprises when your deadline arrives.

The Benefits of Getting This Right

GASB 103 is more than a compliance requirement. When implemented well, it delivers meaningful benefits:

• More comparable financial information across governments
• Enhanced ability to evaluate proprietary fund operational results
• Clearer and more meaningful budgetary variance analysis
• Greater transparency around component unit activities
• Stronger communication with stakeholders and the public

When to Seek Professional Assistance

Consider reaching out to us if your entity has complex proprietary fund operations, multiple component units, or uncertainty around classification and presentation decisions. Getting ahead of these questions now will save time and reduce stress as your deadline approaches.

At Gilbert CPAs, our government and education specialists are ready to help you navigate the details of GASB 103 and develop a plan tailored to your entity's situation. Reach out to our team with any questions.