GASB 103: The New Financial Reporting Model

Governmental Accounting Standards Board (GASB) No. 103, Financial Reporting Model Improvements, focuses on the significance of transparent and accountable financial reporting, emphasizing roles in governance, decision making, and public trust. Significant financial objectives addressed in GASB 103 include: 

• Enhancing accountability through stewardship of public resources and trust building.  
• Effective decision-making and resource allocation based on performance measurement and prioritized fund distribution.
• Addressing stakeholder needs by understanding the diverse information requirements with clearly structured reports, making it easier to understand complex financial information.  
• Providing consistency and comparability with government standards and long-standing financial analytics.  
• Maintaining legal compliance and upholding ethical standards to align practices with state laws, federal standards, and industry best practices and mitigate financial risks.  

The History of GASB 103 

Governmental Accounting Standards Board (GASB) No. 34, Basic Financial Statements and Management’s Discussion and Analysis for State and Local Government, was issued in 1999 to provide a more comprehensive framework for financial reporting in state and local governments. This transformative standard introduced significant changes to government financial statements, requiring governments to present their financial information using a full accrual basis of accounting and enhancing transparency and accountability. Still seeing value in the compliance and short-term liquidity features of fund-level financial statements, those reporting features were also incorporated into the financial statements by GASB’s Statement No. 34. GASB 103 reflects GASB’s re-visit of Statement No. 34 twenty-five years later, reconsidering current trends and stakeholder interests.  

Key Components of GASB 103 Management’s Discussion and Analysis 

Similar to GASB 34, Statement 103 establishes requirements for Management’s Discussion and Analysis (MD&A) as Required Supplementary Information (RSI) in the financial reports for state and local government. The MD&A should provide a narrative introduction, overview, and analysis of the basic financial statements, enhancing the users’ understanding of the respective government’s financial position and results of operations. The following are key financial requirements identified by GASB 103 for MDA&A: 

• Financial highlights should summarize key financial information for the current and prior periods, including significant financial factors that affect operations and change financial conditions. 
• An analysis of the overall financial position that discusses significant items in the financial statement, providing an overview of the respective government's financial position, including assets, liabilities, and net position. 
• A comparison to prior periods, including comparative information to better analyze changes from previous financial periods and discuss trends and factors contributing to the present balance’s increase or decrease.  
• Budgetary highlights that demonstrate variances between the final budget and actual results to address material differences and their causes.  
• Address the known factors, such as issues, events, or economic conditions, that may affect future operations or the respective government’s ability to service its debt, fulfill obligations, or maintain services.  
• Provide insights on infrastructure and Capital Assets, including significant additions or disposals and ongoing infrastructure projects. This helps address potential risks or uncertainties affecting future operations and the government’s financial condition.  

Aside from financial requirements, MD&As must be presented in a narrative form, using clear, understandable, and appropriate language for a diverse audience, and they must align with financial statements to avoid contradictions and confusion. The management is responsible for preparation and fair representation, making sure it is accurate and reflects transparent and ethical reporting standards. It’s important to note placement, as MD&A is typically immediately after the introductory section of the financial report and before the basic financial statements.  

Opposed to GASB 34, GASB 103 refines the expectations for the MD&A content and presentation, providing more specific guidance and detailing requirements. This enhances the user’s understanding of financial statements and promotes clarity, consistency, and relevance.  

Unusual and Infrequent Items 

As part of GASB’s research into financial statement user needs, reporting of Unusual and Infrequent type activity must be in the operating statements. GASB 103 defines unusual or infrequent items as transactions or events that are not part of a government entity’s regular activities and are either unusual or infrequent. Specifically, unusual items are those that are both significant in amount and not expected to occur in the near term, while infrequent items occur rarely. Such items must now be separately identified and reported in the Statement of Activities for Government and Business-Type Activities. In the MD&A, governments should disclose these items to give users context regarding the impact on financial performance and the overall financial position.  

For example, a significant natural disaster, like an earthquake, would be defined as an unusual or infrequent item under GASB 103. The costs associated with an emergency are considered unusual due to their significant nature and because they’re not part of the entity’s typical operational management. Additionally, any insurance reimbursements or grants received specifically in response to that disaster may also be classified as unusual or infrequent items, as they are tied to an event outside normal operational activity. 

Under GASB 34, special and extraordinary items are mentioned more broadly, highlighting the need for governments to disclose significant events that affect financial statements but without specific guidelines on their identification or presentation. In contrast, GASB 103 provides a more explicit definition and criteria for what constitutes unusual or infrequent items, focusing on their impact in the context of MD&A. This distinction enforces greater clarity and relevance, enhancing the reader’s understanding of their significance to the government’s financial performance. 

Proprietary Funds 

GASB 103 identifies the “Proprietary Fund Statement of Revenues, Expenses, and Changes in Fund Net Position” as an important financial statement that provides a detailed summary of proprietary funds' operating results and financial performance. These statements are used to account for activities whose costs are covered primarily through user fees and operate similarly to private businesses.  

GASB 103 specifically elaborates on the requirements for the statements of revenues, expenses, and changes in fund net position for proprietary funds, focusing on their purpose and the type of information necessary for users to understand their financial performance. 

By emphasizing the segregation of operating and non-operating revenues and expenses, clarifying the reporting of net position, and refining the presentation formation, GASB 103 makes sure stakeholders receive clearer, relevant information about the performance and financial position of proprietary funds. This evolution reflects an ongoing effort to enhance financial reporting standards to meet users' needs in evaluating government operations and accountability. 

Navigating GASB 103: A Future Outlook  

GASB 103 has an effective date for reporting periods beginning after June 15, 2025, and all reporting periods thereafter. Organizations are encouraged to adopt guidance as early as possible to maintain compliance and enhance the clarity and usefulness of their financial reporting. Implementing GASB 103 may pose several challenges. From additional staff training and familiarity to implementing robust data processes and analytic systems to effectively communicating with a diverse audience, you need a trusted partner that understands the evolving reporting landscape.  

EisnerAmper assists entities with implementing GASB 103 by providing guidance on the new requirements. Group training and workshops help governments understand and comply with updated reporting standards. These workshops equip your financial staff with the necessary skills to prepare and present the financial information effectively and help develop templates tailored to your organization’s needs. Our team aids by integrating financial reporting systems and data analytics to enhance financial reporting capabilities, helping organizations adapt emerging strategies and cultivate continuous improvement. Contact us below to learn how we can help you.