GASB Statement No 103 Financial Reporting Model Improvements
Financial Reporting Model Improvements – GASB Statement No. 103
Summary
The objective of GASB Statement No. 103 is to enhance the financial reporting model, making it more effective for decision-making and assessing government accountability. It also addresses specific application issues within financial reporting.
Management’s Discussion and Analysis (MD&A)
This Statement maintains the requirement for MD&A to precede basic financial statements, presented as required supplementary information (RSI). MD&A offers an objective analysis of a government’s financial activities based on known facts and conditions, comparing the current year to the previous year.
- MD&A must cover five sections:
- Overview of the Financial Statements
- Financial Summary
- Detailed Analyses
- Significant Capital Asset and Long-Term Financing Activity
- Currently Known Facts, Decisions, or Conditions
- Detailed analyses should explain changes in balances and operations, avoiding mere presentation of amounts or percentages.
- MD&A should not duplicate explanations relevant to multiple sections and should avoid “boilerplate” discussions, focusing on the primary government.
- Information must distinguish between the primary government and its discretely presented component units.
Unusual or Infrequent Items in GASB Statement 103
The Statement defines unusual or infrequent items as transactions that are either unusual in nature or infrequent in occurrence. Governments must display inflows and outflows related to these items separately in the government-wide, governmental fund, and proprietary fund statements.
Presentation of Proprietary Fund Statement in GASB Statement 103
The Statement requires the proprietary fund statement of revenues, expenses, and changes in fund net position to distinguish between operating and nonoperating revenues and expenses.
- Operating revenues and expenses exclude nonoperating revenues and expenses.
- Nonoperating revenues and expenses include:
- Subsidies received and provided
- Contributions to endowments
- Financing-related revenues and expenses
- 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.
Major Component Unit Information
Governments are required to present each major component unit separately in the statement of net position and statement of activities, unless it reduces readability. If readability is compromised, combined statements should follow the fund financial statements.
Budgetary Comparison Information
Governments must present budgetary comparison information using a single method of communication—RSI. This includes:
- Variances between original and final budget amounts
- Variances between final budget and actual amounts
Explanations of significant variances must be included in the notes to RSI.
Effective Date and Transition
The requirements of this GASB Statement 103 will be effective for fiscal years beginning after June 15, 2025, and for all reporting periods thereafter. Early application is encouraged.
Improvements to Financial Reporting
The changes in GASB Statement 103 aim to improve financial reporting in several ways:
- MD&A requirements will enhance the quality of analysis regarding changes from the prior year, improving relevance.
- Separate presentation of unusual or infrequent items will clarify reporting of these items.
- Definitions of operating and nonoperating revenues and expenses will standardize accounting policies across governments, improving comparability.
- The addition of a subtotal for operating income (loss) and noncapital subsidies will enhance the relevance of proprietary fund statements.
- Presentation of major component unit information will improve comparability.
- Budgetary comparison information as RSI will enhance comparability, with specified variances and explanations providing useful decision-making information.
