The Governmental Accounting Standards Board (GASB) has issued Statement No. 103, titled “Financial Reporting Model Improvements,” which aims to bolster key components of the financial reporting model used by tribal, state and local governments. This statement, effective for fiscal years beginning after June 15, 2025, introduces new requirements and modifications to enhance the transparency, comparability, and overall quality of financial reports.
Key Objectives of Statement 103:
The primary objective of Statement No. 103 is to enhance the effectiveness of the financial reporting model. This involves providing information crucial for decision-making and assessing governmental accountability. It also aims to address application issues identified through pre-agenda research conducted by GASB.
Effective Date and Transition
The requirements of Statement No. 103 are effective for fiscal years beginning after June 15, 2025, with earlier application encouraged. Any changes adopted at transition to conform to the new provisions must be reported as a change in accounting principle.
GASB 103: Scope and Applicability
Statement No. 103 establishes new or modifies existing requirements related to:
- Management’s Discussion and Analysis (MD&A)
- Unusual or infrequent items (previously known as extraordinary and special items)
- Presentation of proprietary fund statement of revenues, expenses, and changes in fund net position
- Information about major component units in basic financial statements
- Budgetary comparison information
- Financial trends information in the statistical section
These requirements are applicable to all tribal, state and local governments’ financial statements.
Management’s Discussion and Analysis (MD&A)
The requirement for MD&A remains, but the statement has refined its structure. MD&A now focuses on 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
This format is designed to avoid redundancy and provide clear, relevant information. The analysis should distinguish between the primary government and its discretely presented component units.
Unusual or Infrequent Items
Statement No. 103 describes unusual or infrequent items as transactions and other events that are either unusual in nature or infrequent in occurrence. Governments are required to separately present the inflows and outflows related to each unusual or infrequent item as the last presented flow(s) of resources before the net change in resource flows in the government-wide, governmental fund, and proprietary fund statements of resource flows. This distinct presentation helps stakeholders understand the impact of these items on the financial position and operations of the government entity.
Presentation of the Proprietary Fund Statement of Revenues, Expenses, and Changes in Fund Net Position
This statement requires that the proprietary fund statement of revenues, expenses, and changes in fund net position continue 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 include:
- Subsidies received and provided (subsidies are defined in the statement)
- 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
Additionally, a subtotal for operating income (loss) and noncapital subsidies must be presented before reporting other nonoperating revenues and expenses.
Information about Major Component Units in Basic Financial Statements
Governments should present each major component unit separately in the reporting entity’s statements of net position and activities if it does not reduce the readability of the statements. If presenting each major component unit separately reduces readability, combining statements of major component units should be included in the reporting entity’s basic financial statements after the fund financial statements.
Budgetary Comparison Information
Budgetary comparison schedules must be presented as Required Supplementary Information (RSI) for the general fund and each major special revenue fund with a legally adopted annual budget. Variances between original and final budget amounts, and between final budget amounts and actual results, should be detailed, along with explanations for significant variances in the notes to RSI.
Financial Trends Information
In the statistical section of separately issued financial reports, governmental entities engaged solely in business-type and fiduciary activities are required to present revenues by major source, distinguishing between operating, noncapital subsidy, and other nonoperating revenues and expenses.
Conclusion
GASB Statement No. 103 represents the most significant change to governmental financial statements in many years. For more detailed guidance on the implementation and nuances of GASB Statement No. 103, please refer to the full text available on the GASB website.
