Navigating GASB 103: Key Changes to the Financial Reporting Model

GASB Statement No. 103 represents an important evolution in governmental financial reporting. Despite its imposing title, this standard primarily focuses on enhancing and clarifying the existing financial reporting model that was established by GASB 34 back in 1999. Let me walk you through the key provisions and what you need to know to prepare for implementation.

Background and Implementation Timeline

This standard represents the culmination of a decade-long review process that included research, public comments, field tests, and exposure drafts.

The standard is set for implementation for periods after June 15, 2025 – meaning June 30, 2026, for thos with June 30 fiscal year-ends. Early implementation is encouraged and would fall under GASB 100's requirements for accounting changes and error corrections.

Some initially concerning proposals, such as cash flow statements for governmental activities, were ultimately excluded from the final standard. Personally, I found GASB 103 to be easy to follow and should not be a burden to implement (though I admit I tend to oversimplify and be optimistic).

Key Provisions of GASB 103

1. Management's Discussion and Analysis (MD&A)

The most substantial portion of GASB 103 addresses the MD&A section. Research indicated that many current MD&As contain boilerplate information, excessive repetition, and lack focus on explaining changes. GASB 103 aims to transform the MD&A into a more user-friendly document that provides substantive analysis.

The revised MD&A will consist of exactly five sections:

1. Overview of the Financial Statements - Explaining the government's structure, funds, and accounting basis
2. Financial Summary - Comparative current year to prior year information with optional percentage changes
3. Detailed Analysis - Focusing on explanations for significant changes, avoiding duplication
4. Significant Capital Asset and Long-Term Financing Activity - Highlighting major projects and debt activities
5. Currently Known Facts, Decisions, or Conditions - Information known as of the financial statement issuance date

The standard instructs preparers to avoid unnecessary duplication throughout the MD&A. It's also important to note that budget analysis is not part of the new MD&A structure but is addressed elsewhere in GASB 103.

The "Currently Known Facts, Decisions, and Conditions" section deserves special attention as it provides information about developments that might impact the government after year-end. Examples include new union contracts, budget amendments, unemployment trends, state budget impacts, or pension plan changes. The standard emphasizes including only actual developments, not speculative items.

2. Unusual or Infrequent Items

GASB 103 replaces "special and extraordinary items” with "unusual or infrequent items." While "special and extraordinary" sounds positive and "unusual or infrequent" sounds more like an insult, the new terminology better describes the actual accounting concept.

"Unusual in nature" refers to events abnormal to the government's typical operations. "Infrequent" indicates occurrences not expected to happen again in the foreseeable future. These items will be displayed at the bottom of the income statement with inflows and outflows presented separately rather than netted together.

Examples of such items could include flood damage, certain grants, or cleanup costs. Financial statements must disclose what happened, why it was unusual, why it's not expected to recur, and whether it was within management's control.

3. Presentation of Proprietary Funds

Rather than attempting to define "operating revenues," GASB 103 defines "non-operating" items, with everything else classified as operating. Non-operating items include:

• Subsidies received and provided
• Contributions to permanent and term endowments
• Revenues and expenses related to financing
• Investment income and expenses
• Disposal of capital assets and inventory

The presentation will include operating revenues and expenses, followed by non-capital subsidies, then other non-operating revenues and expenses. Capital-related subsidies are presented with other non-operating items.

4. Component Unit Information

GASB 103 clarifies that major component units should be presented separately on government-wide statements when possible. If this reduces readability, combining statements for major component units should be presented immediately after fund financial statements. Disclosing component unit information only in the notes is not permitted.

5. Budgetary Comparison Information

This section requires:

• Budgetary comparison statements are reported as Required Supplementary Information (RSI)
• Adding columns showing variances between original and final budgets
• Adding explanations in the notes to RSI for significant variances

This may be the most challenging part to implement as it requires explanations for both original-to-final budget variances and final-budget-to-actual variances. I'd suggest establishing internal thresholds for what constitutes "significant" to ensure consistent application. For example, you might define "significant" as variances greater than 10% plus a certain dollar amount.

6. Statistical Section Information

For business-type activities, statistical information should distinguish between operating, non-capital subsidy, and other non-operating revenues, aligning with the changes to proprietary fund statements.

Preparing for Implementation

While full implementation isn't required until FY2026, I recommend several preparatory steps:

• Review your current MD&A to remove excess boilerplate information and repetitive content
• Consider the level of detail in your budgetary comparison statements (department level vs. line item)
• Consult with your auditors early about implementation questions
• Reference appendix C of GASB 103 for illustration examples

Conclusion

GASB 103 aims to improve the quality of government financial reporting through more focused analysis, clearer presentation, and enhanced relevance. While the standard introduces several changes, most are presentation-related rather than accounting changes.

With sufficient preparation time before the implementation deadline, we can make incremental adjustments to our reporting practices to ensure a smooth transition. I encourage you to review the standard directly, as it's relatively concise and provides numerous helpful illustrations.

If you have questions about GASB 103 implementation, don't hesitate to reach out to your auditor. We'd rather have those conversations now than when we’re finalizing your financial statements.