GASB Issues Statement No. 103 for Financial Reporting Model Improvements

The Governmental Accounting Standards Board (GASB) has released Statement No.103 Financial Reporting Model Improvements (the Statement). The Statement is the culmination of a years-long reassessment of prior guidance, notably Statement No. 34, and includes improvements to the financial reporting model to enhance the effectiveness of the information provided. The changes are designed to ensure financial statements provide clear, objective and highly useful information to the public and decision-makers.

Key Changes You Need to Know

Management’s Discussion and Analysis (MD&A)

While the Statement does not change the general requirements for the MD&A, it directly addresses common issues to improve the quality of this required supplementary information (RSI). It directs entities to avoid unnecessary duplication and boilerplate text such as stating the dollar amount and percentage change of key balances without additional context. Instead, entities must provide fact-based insights into why balances changed. This includes providing an objective, easily readable analysis of current-year results compared to the prior year, using currently known facts, decisions or conditions.

For example, if an entity decided to harvest appreciation in its equity portfolio and re-invest the proceeds in U.S. Treasury bonds, the MD&A should explain this shift in investment strategy, rather than stating that equity holdings decreased due to sales and bond holdings increased due to purchases. 

The MD&A is required to include the following topics:

1. Overview of the financial statements
2. Financial summary
3. Detailed analyses (explaining the reasons behind significant changes)
4. Significant capital asset and long-term financing activity
5. Currently known facts, decisions or conditions (that may impact the entity significantly)

Presentation of Proprietary Fund Classifications

The Statement establishes a framework for distinguishing between operating and nonoperating revenues and expenses in the proprietary fund statement of revenues expenses and changes in fund net position. The framework specifies what is included in nonoperating revenues and expenses, including:

• Subsidies received and provided 
• Contributions to endowment funds 
• Revenues and expenses related to financing 
• Resources from disposal of capital assets and inventory
• Investment income and expenses

Operating revenues and expenses are all those not classified as nonoperating. 

A proprietary fund must consider its principal ongoing operations when classifying revenues and expenses as operating or nonoperating. For example, a proprietary fund established to provide loans to local small businesses would classify interest income from loans as operating income.

Other Targeted Improvements

The Statement also clarifies several other reporting items in government wide and fund financial statements:

• Unusual or infrequent items: These transactions must be presented separately and on a gross basis (not net). The Statement removes the distinction between “extraordinary items” and “special items” to focus on items that are unusual in nature or infrequent in occurrence, or both.
• Major component units: Governments must present each major component unit separately in the statement of net position and statement of activities, if it does not reduce the readability of the statements. If readability is reduced, governments must instead present combining statements of the major component units after the fund financial statements. 
• Budgetary comparisons: This information must be presented as RSI. Additionally, governments must present variances between (i) the original and final budget, and (ii) the final budget and actual amounts. Explanation of significant variances must be presented in the notes to RSI. 

Implementation Timeline

Statement No.103 is effective for fiscal years beginning after June 15, 2025, and all periods thereafter; earlier application is encouraged.