As state and local governments prepare for upcoming financial reporting cycles, a new Governmental Accounting Standards Board (GASB) Statement No. 103, Financial Reporting Model Improvements, deserves close attention.

This update is the culmination of a multi-year review of the financial reporting model that was first introduced under GASB No. 34. Although the new standard is not a complete overhaul, it will significantly affect how information is presented and disclosed, with the goal of making financial statements more useful, transparent, and decision‑oriented.

Since GASB No. 103 is effective for fiscal years (FY) beginning after June 15, 2025, it will impact FY 2026 financial statements for governments with June 30 year ends. In this article, we’ll provide a practical overview of what’s changing and how your government can begin preparing.

Management’s Discussion and Analysis (MD&A)

One of the most notable changes under GASB No. 103 affects Management’s Discussion and Analysis (MD&A). While MD&A remains required supplementary information (RSI), the new guidance narrows its scope while raising expectations for meaningful analysis. MD&A must now be organized into five required sections:

1. Overview of the financial statements
2. Financial summary
3. Detailed analyses
4. Significant capital asset and long‑term financing activity
5. Currently known facts, decisions, or conditions

Instead of simply listing dollar and percentage changes, governments are now expected to provide detailed insights as to why changes occurred. The standard also aims to reduce “boilerplate” language and repetitive explanations throughout these sections.

As a result, MD&A should now read more like a management briefing that provides context, insight, and forward‑looking information, rather than serving as a routine compliance document.

Unusual or infrequent items

GASB No. 103 eliminates the long‑standing categories of “extraordinary” and “special” items. In their place, governments must identify unusual or infrequent transactions or events.

It is now required to present the inflows and outflows associated with each unusual or infrequent item separately and on a gross—not net—basis. These should be displayed as the final flow(s) before the net change in resource flows, and applies to:

• Government-wide statements
• Governmental fund statements
• Proprietary fund statements of resource flows

The goal of this change is to improve the visibility and comparability of unusual or infrequent transactions or events within financial statements.

Proprietary fund statement

Business-type activity (BTA) governments (which are also often special-purpose governments) provide services to the public in exchange for a fee, such as hospitals, utilities, and universities. These entities often receive support from multiple revenue streams, including grants and endowments.

Historically, these governments have presented operating and nonoperating revenues and expenses separately in the statement of revenues, expenses, and changes in fund net position (SRECNP).

GASB No. 103 now establishes a clearer framework for distinguishing between operating and nonoperating revenues and expenses. Operating revenues and expenses are defined broadly as those other than nonoperating revenues and expenses. Nonoperating revenues and expenses are defined as:

• Subsidies received and provided with noncapital subsidies displayed separately
• 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

This change is intended to provide greater clarity and consistency in how operating results are presented.

Major component unit information

Governments are now required to present information about each major component unit separately within the reporting entity’s statement of net position and statement of activities, provided that doing so does not diminish the overall readability of the statements.

In circumstances where presenting each major component unit separately would compromise the clarity or effectiveness of the statements, governments should instead present combining statements of the major component units. These statements should appear after the fund financial statements to ensure all relevant information is disclosed in a clear and organized manner.

Budgetary comparison information

Governments are required to present budgetary comparison information using a single method of communication, specifically as RSI for mandatory budgetary comparison schedules. This approach ensures consistency and transparency in how budgetary data is disclosed.

In addition to presenting basic budgetary comparison, governments must show two sets of variances:

1. The variances between the original budget and the final amended budget amounts
2. The variances between the final budget and the actual amounts

This dual presentation provides a clear assessment of how and why the budget changed during the fiscal year and how actual financial results compare to the final approved budget.

Governments must also explain significant variances in the notes to the RSI comparing the original and final budgets and the final budget and actual results, providing additional context for readers of the financial statements.

Final thoughts

GASB No. 103 reflects a broader trend toward clearer storytelling and greater transparency in governmental financial reporting. While implementing this new statement will require effort, it also offers governments an opportunity to better communicate financial results and operational decisions.

Because GASB No. 103 is effective for this fiscal year, your government should begin preparing now. Start by reviewing which of your reporting processes will be affected by GASB No. 103, and make the proper revisions to your policies, procedures, and reporting templates.

If your government needs assistance understanding this new standard or preparing for its implementation, we are here to help. Please contact us using the form below or reach out to any of our Local Government team leaders to start the conversation.