Professional Standards Committee Highlights – GASB 103 Changes to Financial Reporting Model

In April 2024, the GASB issued Statement No. 103, Financial Reporting Model Improvements which marks the first set of changes to the GASB Statement No. 34 financial reporting model.  The Statement is applicable for periods beginning after June 15, 2025, and aims to enhance transparency and consistency in financial reporting. 

The project, which began in 2016, was considering changes that would impact much of the financial statement presentation we see today, including changes to the measurement focus and basis of accounting, a revised statement of activities format, a possible cash flow statement for governmental activities, enhancements to the MD&A, re-evaluation of permanent funds, possible additional disclosure information related to debt service funds…and much more.

Throughout the project, the GASB solicited feedback from the industry and ultimately, there were five key areas that were impacted. 

Management’s Discussion and Analysis
There is a focus in the Statement on keeping the MD&A fact based and telling the story of what happened during the year.  The focus should be on the primary government and include facts, decisions or conditions that users may not be aware of. There are also enhancements to comparative information, long-term liabilities and capital asset comparisons.

Unusual and Infrequent Items
In the past, there was confusion over whether a transaction qualified as a special item or an extraordinary item. This Statement eliminates the two classifications and creates one with a focus on determining if an item is unusual or infrequent. If it is, then it’s shown separately on the income statement. It’s important that each item be shown separately on the income statement and not netted together. The Statement also adds a footnote disclosure that details the impacts of the item and whether or not the transaction was within management’s control. 

Proprietary Fund Statements
The Statement clearly defines nonoperating revenues and expenses as (1) subsidies received and provided, (2) contributions to permanent and term endowments, (3) revenues and expenses related to financing, (4) resources from the disposal of capital assets and inventory, and (5) investment income and expenses. Operating revenues and expenses include everything else not defined as nonoperating. 

There is no longer discretion in determining operating and nonoperating revenues and expenses classifications.  It does, however, allow for an alternative approach to show noncapital subsidies as a part of operating revenues or expenses if these subsidies are provided on a regular basis.

Major Component Unit Information
The Statement eliminates the option to present major component information using more than one method. If there are multiple major component units and readability is impacted, they may be presented in aggregate with a combining statement that shows each one after the fund financial statements as a part of the basic financial statements. This would be a new statement following the fiduciary fund statements. 

Budgetary Comparison Information
The Statement provides for a single method of communicating budgetary comparison information—RSI. Budgetary comparison information is required to present (1) variances between original and final budget amounts and (2) variances between final budget and actual amounts.  In addition, the notes to RSI should provide an explanation of significant variances.

In conclusion, these changes are manageable and significantly less extensive than what the GASB initially considered.  While you have some time to prepare, don’t fall behind and wait to address these changes.  For more details, you can view all GASB statements and access the full text on their website at https://gasb.org/standards-and-guidance/pronouncements, or use the new Governmental Accounting Research System (GARS) at https://gars.gasb.org/Login for comprehensive access.

If you have questions regarding this topic, contact Donna K. Lee, Chair of the Professional Standards Committee at standards.chair@csmfo.org. 

The Professional Standards Committee operates as a technical resource to CSMFO members. The Committee is comprised of municipal and commercial members whose mission is to keep members informed of emerging issues and best practices.