A New Era in Government Financial Reporting

Governmental financial statements are a cornerstone of public accountability. They tell the story of how taxpayer dollars were collected, spent, and managed, and the people who rely on them deserve clarity. In April 2024, the Governmental Accounting Standards Board (GASB) issued Statement No. 103, the most comprehensive update to the governmental financial reporting model since GASB 34 over two decades ago.

 This isn’t a minor technical adjustment. GASB 103 fundamentally changes how financial information is organized, analyzed, and communicated. The standard is effective for fiscal years beginning after June 15, 2025, meaning most governments with June 30 year-ends will implement it for fiscal year 2026.

 Taking action now can help you make informed decisions and set yourself up for a smoother year ahead.

 

What GASB 103 Changes and Why It Matters

1. Management’s Discussion and Analysis: From Description to Analysis

 MD&A is getting a major overhaul. Under GASB 103, it must be structured around five required sections, and content must stay within them:

·    Overview of the Financial Statements

·    Financial Summary

·    Detailed Analyses

·    Significant Capital Asset and Long-Term Financing Activity

·    Currently Known Facts, Decisions, or Conditions

 More importantly, the standard demands a shift from describing what happened to explaining why it happened. Boilerplate language is out. Meaningful, organization-specific analysis is in. MD&A must also clearly distinguish between the primary government and any component units.

 The bottom line: Preparing MD&A will require significantly more effort, earlier in the process, with input from across your organization.

 

2. Unusual or Infrequent Items: Greater Visibility

 Transactions that are unusual in nature or infrequent in occurrence must now be:

·    Presented separately in the financial statements

·    Shown as the last inflow or outflow before the change in net position or fund balance

This makes one-time events, such as property sales, litigation settlements, and disaster-related costs, clearly visible to users, so they aren’t confused with ongoing operations.

3. Proprietary Fund Reporting: Cleaner Classifications

 GASB 103 provides clear guidance on what must be classified as nonoperating, including:

·    Subsidies

·    Investment income and expenses

·    Financing-related activities

·    Disposal of capital assets

 The standard also introduces a new required subtotal: operating income (loss) and noncapital subsidies, giving users a direct read on whether an activity’s revenues are sufficient to cover its costs.

 Utilities, housing authorities, and healthcare operations will likely need to reassess how revenues and expenses are currently categorized.

 4. Major Component Units: More Transparency

 Governments must now present each major component unit separately in the government-wide statements when feasible. If separate columns would hurt readability, combining statements may be used, but the detail for each major component unit must remain intact.

 This change allows users to see the financial position and activities of significant related entities individually, rather than having them aggregated into a single, hard-to-parse column.

 

5. Budgetary Comparison Reporting: Variance Explanations Required

 For the General Fund and major special revenue funds with legally adopted budgets, budgetary comparison information must now appear exclusively as Required Supplementary Information (RSI) and must include:

·    Variances between original and final budgets

·    Variances between final budget and actual results

·    Explanations of significant variances in the notes to RSI

 

This means budget variance tracking can’t be a year-end afterthought. Variances need to be identified, investigated, and documented as they occur throughout the year.

What You Should Be Doing Now 

GASB 103 requires earlier planning and more thorough documentation than most organizations are used to. Here’s where to focus:

·    Revisit your MD&A process. Shift from year-over-year comparisons to genuine analysis. Start earlier and involve department heads who can explain the operational drivers behind financial changes.

·    Review proprietary fund classifications. Identify revenues and expenses that will need to be reclassified under the new definitions and update your chart of accounts accordingly.

·    Strengthen budget variance tracking. Implement ongoing processes to capture and document significant variances, don’t wait until year-end to reconstruct what happened months ago.

·    Coordinate with component units. Communicate the changes early and establish shared processes to ensure consistent implementation across your reporting entity.

·    Flag unusual or infrequent items. Establish criteria for identifying these transactions throughout the year so they can be properly presented and disclosed.

Your Year-End Checklist

·    Review and update MD&A to align with the new five-section structure and analytical requirements

·    Identify necessary proprietary fund classification and presentation changes

·    Confirm readiness and alignment with component units

·    Compile and explain significant budget variances for RSI

·    Ensure proper classification of unusual or infrequent items

·    Capture currently known facts through the financial statement issuance date

BPW Is Here to Help

 At Bartlett, Pringle and Wolf, LLP, we see ourselves as more than your auditors, we are a year-round resource and trusted advisor. Our governmental accounting specialists have been closely following GASB 103 and can help you assess where your current practices need to change, navigate the technical requirements, and develop processes that set you up for a smooth implementation.

The time to start is now. Reach out to begin the conversation.

 

Tracey A. Solomon, CPA
Bartlett, Pringle and Wolf, LLP
805.963.7811 | traceys@bpw.com