If you thought the last major GASB update was a lot to handle, you’re going to want to pay attention to this one. GASB Statement No. 103, Financial Reporting Model Improvements represents the most substantial update to the financial reporting model since GASB Statement No. 34 was issued 25 years ago. As your advisors, we want to help you understand what’s actually changing and how to tackle implementation without the usual headaches.
Key Timeline and Impact
Let’s talk about timing: GASB 103 becomes effective for fiscal years beginning after June 15, 2025. The standard focuses on improving key components of the financial reporting model to enhance its effectiveness in providing information essential for decision making and assessing a government’s accountability. Our advice? Don’t wait until the last minute. Early implementation is encouraged, and for good reason. It gives you time to work through the inevitable challenges before you’re up against mandatory compliance dates.
Five Major Changes in GASB 103
Let’s break down what’s actually changing. There are five key areas where you’ll need to adjust your approach.
1. Enhanced Management’s Discussion and Analysis
If you’ve been getting by with the same MD&A template year after year, those days are over. The standard continues requiring that basic financial statements be preceded by Management’s Discussion and Analysis (MD&A), presented as required supplementary information. However, GASB 103 significantly enhances MD&A requirements by limiting information to five specific sections:
- Overview of the Financial Statements
- Financial Summary
- Detailed Analyses
- Significant Capital Asset and Long-Term Financing Activity
- Currently Known Facts, Decisions, or Conditions.
Here’s the big shift: the standard emphasizes that detailed analyses should explain why balances and results of operations changed rather than simply presenting amounts or percentages. No more copying and pasting from last year. Organizations must avoid “boilerplate” discussions by presenting only the most relevant information focused on the primary government, while distinguishing between the primary government and its discretely presented component units.
2. Unusual or Infrequent Items
Remember struggling with whether something qualified as “extraordinary” versus “special”? GASB heard you. GASB 103 describes unusual or infrequent items as transactions and other events that are either unusual in nature or infrequent in occurrence, replacing the previous extraordinary and special items categories. The presentation requirement is specific: governments must display inflows and outflows related to each unusual or infrequent item separately as the last presented flow of resources prior to the net change in resource flows in government-wide, governmental fund, and proprietary fund statements of resource flows
3. Enhanced Proprietary Fund Statement Presentation
If your organization has proprietary funds, pay close attention to this section. The proprietary fund statement of revenues, expenses, and changes in fund net position continues to distinguish between operating and nonoperating revenues and expenses. Operating revenues and expenses are defined as revenues and expenses other than nonoperating revenues and expenses.
Nonoperating revenues and expenses are specifically defined as 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, and investment income and expenses.
Here’s what’s new: in addition to the subtotals currently required in a proprietary fund statement of revenues, expenses, and changes in fund net position, GASB 103 requires that a subtotal for operating income (loss) and noncapital subsidies be presented before reporting other nonoperating revenues and expenses.
The definition of subsidies gets detailed, so let’s be clear about what counts. Subsidies are defined as resources received from another party or fund for which the proprietary fund does not provide goods and services to the other party or fund and that directly or indirectly keep the proprietary fund’s current or future fees and charges lower than they would be otherwise, resources provided to another party or fund for which the other party or fund does not provide goods and services to the proprietary fund and that are recoverable through the proprietary fund’s current or future pricing policies, and all other transfers.
4. Major Component Unit Information Requirements
This one’s straightforward, but it matters for presentation. GASB 103 requires governments to present each major component unit separately in the reporting entity’s statement of net position and statement of activities if it does not reduce readability. The key word here is “readability”. If separate presentation would make your statements too cluttered or confusing, combining statements of major component units should be presented after the fund financial statements.
5. Standardized Budgetary Comparison Information
If you’ve been presenting budgetary comparisons as part of your basic financial statements, that option is going away. The standard requires governments to present budgetary comparison information using required supplementary information as the single method of communication. You’ll need to show your work more clearly now. Governments must present variances between original and final budget amounts and variances between final budget and actual amounts, with explanations of significant variances required in notes to required supplementary information.
Implementation Considerations
Let’s talk about who’s doing what to get ready. Most changes fall on the preparer of the financial statements since they involve including certain information, placement of the information within the financial statements, and specific line items on the financial statements.
The MD&A changes are where you’ll spend most of your time. Changes required for the MD&A will require the most preparation and thought. Preparers will need to explain the “why” behind changes from the previous reporting period. Here’s where collaboration becomes critical. Clients are in the best position to help explain the “why” since preparers may not know the details of all events affecting the numbers on the statements.
What does this look like in practice? For example, property taxes receivable increased due to the passage of a new levy that will begin collecting in the next reporting period and an increase in property valuations. Expenses for wages, salaries and benefits increased due to the implementation of new employment agreements and a 15 percent increase in health insurance premiums over the prior year.
Your action plan should include reviewing current MD&A practices, evaluating unusual or infrequent items from the current period and prior period for proper classification, and assessing proprietary fund presentations for compliance with new subtotal requirements.
Looking Ahead
Look, we know GASB 103 presents implementation challenges, but there’s a silver lining. It offers real opportunities to enhance financial reporting transparency and stakeholder communication. The modernized reporting framework provides users with more meaningful information for decision making while maintaining the fundamental basis of accounting for governmental funds
Bottom line? The key to successful implementation lies in preparation and systematic analysis of your organization’s specific circumstances. If you haven’t started preparing yet, you need to get moving. With the June 2025 effective date, organizations should already be gathering information about operational changes, reviewing current reporting practices, and establishing procedures for ongoing compliance.
The experienced government services team at Rea provides consultation on new GASB implementations for organizations that prepare their own financial statements and automatically implements new GASB requirements for clients with whom we have financial statement preparation engagements. Our professionals understand the complexities government finance teams face when managing compliance requirements.
For more information about GASB 103 advisory services or financial statement preparation, or to discuss your organization’s specific situation, reach out to your Rea advisor.
