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GASB 103 - Financial Reporting Model Improvements

Focus Area: The update of the GASB 34 framework to improve financial reporting model to enhance its effectiveness in providing information for decision making and assessing a government’s accountability.

GASB 103 – Financial Reporting Model Improvements

March 2026

In April 2024, the Governmental Accounting Standards Board (GASB) issued GASB Statement No. 103, Financial Reporting Model Improvements. This statement provides guidance on targeted enhancements to the governmental financial reporting model and addresses multiple areas of financial statement presentation and disclosure. These include updates to the management’s discussion and analysis (MD&A), unusual or infrequent items, proprietary fund statement presentation, major component unit information, and budgetary comparison information.

The objective of Statement 103 is to improve the clarity, consistency, and comparability of governmental financial reporting by reducing diversity in practice and enhancing the usefulness of information provided to financial statement users. The amendments introduced by this statement are intended to strengthen transparency and accountability while preserving the fundamental structure of the existing financial reporting model.

Management Discussion and Analysis

Overview

GASB Statement 103 refines the structure and content of MD&A, offering readers of financial statements with more clarity from both short-term and long-term perspectives, while making MD&A easier to understand for those without extensive knowledge of governmental accounting.

GASB’s refinements aim to make MD&A more useful and informative by:

  • Placing an emphasis on analysis, not amounts. Preparers should explain the reasons behind changes from the prior year rather than simply presenting the amounts or percentages by which they changed.
  • Reducing boilerplate language and discussions.
  • Avoiding repetitive information which will mitigate the risk of inconsistencies throughout the document.

Additionally, the writing style should be objective, readable, and understandable to non-experts. Where possible, visual aids such as charts, graphs, and tables are encouraged to clarify trends and results. The MD&A should be confined to the topics discussed in the five sections below:

  1. Overview of the Financial Statements
    1. A high-level explanation of what the financial statements include and how they relate.
  2. Financial Summary
    1. This section should present condensed current year figures with comparative prior year data, distinguishing between governmental and business-type activities.
  3. Detailed Analyses
    1. Analysis of changes in financial position for governmental and business-type activities.
    2. Explanations of why amounts changed from the prior year.
    3. Discussion of significant policy changes and important economic factors that significantly impacted operating results for the year.
    4. An analysis of fund balance or net position and results of operations of each major fund.
  4. Significant Capital Asset and Long-term Financing Activity
    1. A description of significant capital asset activity during the year, including certain intangible assets. The description should address any significant policy changes and economic factors relevant to capital asset activity that occurred during the year.
    2. A description  of significant long-term financing activity during the year, including debt, leases, subscription-based information technology arrangements (SBITAs), and public-private partnerships (PPPs). The description should discuss any significant policy changes and economic factors relevant to long-term financing activity that occurred during the year.
  5. Currently Known Facts, Decisions, or Conditions 
    1. A description of significant events or conditions that may affect future financial position  or results of operations. 
    2. Examples include a) trends in relevant economic and demographic data, b) relevant factors used to develop the subsequent year's budget that will indicate how results of operations will change in the subsequent year, c) expected changes in budgetary net position or fund balance, d) actions that government has taken to address postemployment benefit liabilities, capital asset improvement plans, PPP arrangements, and other long-term financings that will affect the government in a subsequent period and e) new legislation or regulations imposed on the government.

Lastly, the budgetary comparison analysis for the general fund is no longer required in the MD&A. This analysis is now reported as Required Supplementary Information (RSI).

Implementation Considerations:

To help end users address this portion of the standard, OSC will be providing revised ACFR package worksheets, workshops and/or roundtable discussions, and updates to the MD&A memos that OSC sends to agencies to obtain MD&A information from them. More details will be made available after the fiscal year 2026 ACFR package is posted.

Unusual or Infrequent Items

Overview

Under Statement 103, preparers are no longer required to assess whether transactions or events qualify as either extraordinary item or as a special items. Instead, such transactions will now be collectively reported as unusual or infrequent items. This change is intended to simplify the financial statement presentation and standardize the presentation and disclosure of unusual or infrequent items to enhance consistency and comparability across governments.  

Unusual or infrequent items are defined as transactions or other events that are either unusual in nature or infrequent in occurrence. Items that are unusual in nature possess a high degree of abnormality and are clearly unrelated to the ordinary and typical activities of the agency. Items that are infrequent in occurrence are items that are not expected to recur in the foreseeable future. Examples could include a natural disaster, large forgiveness of debt, or discontinued operation (this is not an all-inclusive list but instead possible examples.)  These items should be presented as the last flow(s) of resources prior to the net change in resource flows in the government-wide, governmental fund, and proprietary fund statements of resource flows. Each unusual or infrequent item must be presented separately and not be netted, even when multiple such transactions occur within the same reporting period. In addition, governments are required to disclose the program, function, or identifiable activity to which each unusual or infrequent item relates, as well as whether that transaction or event was within the control of management.

Implementation Considerations:

To help end users address this portion of the standard, OSC is updating the Other Items Section on WS 355 for the 2026 ACFR packages. Additional details will be provided here after the fiscal year 2026 ACFR packages are posted and will be addressed at the planning conferences in the spring.

Presentation of the Proprietary Fund Statement of Revenues, Expenses, and Changes in Fund Net Position  

Statement 103 requires that the proprietary fund statement of revenues, expenses, and changes in fund net position (SRECNP or Statement of Activities) distinguish between operating and nonoperating revenues and expenses based on newly established definitions.  As a result of these definitions and revised section headings, certain revenues and expenses captions that were previously reported in one section of these statements may now be required to be presented in a different section under the updated guidance.

By providing uniform definitions for operating and nonoperating activity, Statement 103 reduces reliance on entity specific accounting policies. These changes are intended to enhance consistency and improve comparability in the presentation of proprietary fund financial statements across governments while improving the clarity of operating results for financial statement users.

There are several main key changes under this new requirement.

  • Definitions of Operating Revenues and Expenses and of Nonoperating Revenues and Expenses – Previous guidance under Statement No. 34 highlighted inconsistencies in the classification of operating and nonoperating revenues and expenses. The additional guidance in this section aims to increase comparability and relevant presentation in SCRECNP. To determine the classification of a transaction, the Standard suggests that the most feasible way to distinguish whether a transaction falls under operating versus nonoperating category is to evaluate the new definition of nonoperating revenues and expenses.

    Per Statement 103 paragraph 13 the nonoperating revenues and expenses are defined as:

    • Subsidies received and provided (Note: the definition of subsidy is explained later.),
    • Contributions to permanent and term endowments (i.e., Gifts to donor-restricted endowments, payment on endowment pledges),
    • Revenues and expenses related to financing (i.e., interest expense from financing or borrowing or interest revenue related to financing such as leasing property to other entities with the exception per the definition of operation revenues in the next paragraph),
    • Resources from the disposal of capital assets and inventory (i.e., gain or loss on sale of capitals certain insurance recoveries), and
    • Investment income and expenses.

    Operating revenues and expenses would be those other than defined above as nonoperating unless the nature of the transactions constitutes the ongoing operations as determined by the agency, or the transaction qualifies as an unusual or infrequent item. Some examples of the ongoing operations are:

    1.    An activity’s operating revenue covers its operating costs, 
    2.    Rental revenues from excess land and sales of inventory in the ordinary course of business activity, or 
    3.    Revenues recognized as inflow of resources related to a lease (GASB 2025-1 Q4.4).

    Also, the new definitions in Statement 103 affect the classification of certain revenues and expenses. For example, public institutions historically reported Pell Grant revenue, which are nonexchange transactions, as noncapital grants within the nonoperating revenues section in their financial statements. Under the revised new definition of nonoperating revenues, Pell Grant revenue is considered operating revenue, rather than a subsidy (see definitions of subsidies section below for further guidance) because it does not keep current or future tuition and fee rates lower than they would be otherwise. Pell Grants are non-exchange federal grants provided to the institution for named individual students; while they reduce the fees for student recipients, they do not reduce the fees charged for everyone.

    Additionally, all entities should apply transaction classification guidelines that are consistent with the related classifications in the statement of cash flows under Governmental Accounting Standards Board Statement No. 9, which further supports comparability across financial statements.

  • Definitions of Subsidies – Prior to Statement 103, authoritative guidance did not define a subsidy; however, additional evaluation shall be required when determining subsidies. Under Statement 103, a transaction must be nonexchange in nature to qualify as a subsidy. Paragraph 14 of this standard defines subsidies as follows:

    • Resources received from another party or fund:
      • (1) for which the proprietary fund does not provide goods and services to the other party or fund; and
      • (2) that directly or indirectly keep the proprietary fund’s current or future fees and charges lower than they would be otherwise.
    • Resources provided to another party or fund:
      • (1) for which the other party or fund does not provide goods and services to the proprietary fund; and 
      • (2) that are recoverable through proprietary fund’s current or future pricing policies. 
    • All other transfers in and out.

    Furthermore, subsidies are classified into capital or noncapital subsidies. The key is to determine the intent of the provider and the scope or substance. Subsidies are classified as noncapital subsidies if the provider of the subsidy either does not limit the use of the resources or limits the use of the resources to something other than the acquisition of capital assets. Subsidies are only classified as capital subsidies (that is, all subsidies other than noncapital subsidies) if the provider of the subsidy has limited the use of the resources to the acquisition of capital assets. 

    If a revenue or expense meets the subsidy definition and is noncapital in nature, then it is reported in the noncapital subsidies section of the SCRENP; otherwise, it is reported as a capital subsidy in the other nonoperating revenues and expenses section such as capital and noncapital appropriation (Statement 103.752-1). An example from Implementation Guidance 2025-1 Question 4.5 is shown in the table below.

Transaction Provider's Intention Type of Subsidy* Report Secions
Acquisition of capital assets No limit of resource usage, or no limit to use resources to something else other than capital asset acquisition. Noncapital subsidies Noncapital subsidies
Acquisition of capital assets Limit usage of the use of the resource to capital asset acquisition. Capital subsidies Other nonoperating revenues and expenses

*Exception: As an exception, revenues or expenses that meet the definition of a subsidy are generally reported outside of operating activities in the statement of revenues, expenses, and changes in net position (SRECNP). However, Statement 103, paragraph 13 provides an exception when the revenue or expense results from the entity’s principal ongoing operations, in which case it is reported as operating activity.  Statement 103 and its Implementation Guidance 2025-1 provide examples of this exception:

  • Public universities that are subsidized in their research would normally report research grant as subsidies within nonoperating revenue. However, if the universities research is considered their principal ongoing operations, reporting research grant as operating revenues may be appropriate even if the definition of nonoperating revenue applies.  
  • An entity whose principal operations are to make loans to first-time homeowners would present interest income from those loans as operating revenue. This example existed in previous guidance to allow both interest income and interest expense to be presented as operating but was amended by Statement 103 to remove the reference to interest expense. (Question 4.4)
     
  • The order of presentation – Proprietary fund revenues should be reported by major sources. Revenues and expenses should be distinguished as operating, noncapital subsidy, and other nonoperating. The revised format of the SRECNP should present in the order shown below as applicable, using the all-inclusive format which is designed to enhance the effectiveness of financial reporting, provide essential information for decision making, and assess accountability.  The table below shows the comparison between GASB 34 and GASB 103.
New - Statement 103 Required Presentation Old - GASB 34 Required Presentation
Operating revenues (detailed)
Total operating revenues		 Operating revenues (detailed)
Total operating revenues
Operating expenses (detailed)
Total operating expenses		 Operating expenses (detailed)
Total operating expenses
Operating income or loss Operating income or loss
Noncapital subsidies (detailed)*
Total noncapital subsidies		 (Not exist in GASB 34)
Operating income (loss) and noncapital subsidies (Not exist in GASB 34)
Other nonoperating revenues and expenses (detailed)*
Total other nonoperating revenues and expenses		 Nonoperating revenues and expenses (detailed)
Total nonoperating revenues and expenses
Income or loss before unusual or infrequent items Income or loss before other revenues, expenses, gains, losses, and transfers
(Move to Other nonoperating revenues and expense section) Capital contributions, additions to permanent and endowments, special and extraordinary items (detailed), transfers*
Unusual or infrequent items (detailed) Special items or Extraordinary gain or loss
Increase or decrease in fund net position Increase or decrease in net position
Net position—beginning of period Net position – beginning of period
Net position—end of period Net position – end of period

*Under Statement 103, capital contributions and additions to endowments should be presented as other nonoperating revenues (expenses). Transfers will be presented as either noncapital subsidies or other nonoperating revenues (expenses).  Statement 103 replaces special and extraordinary items with unusual or infrequent items. Also, a transaction may qualify as operating revenues or expenses when such transaction is considered an ongoing operation.

An illustration of NCFS ACFR 53P is illustrated in Appendix A – Table 1.1. Note that the example does not show a comprehensive list since some accounts may fall under different categories. 

  • Cash Flow Statement – Statement 103 does not impact presentation of the statement of cash flows. The four sections of cash flow statements (Operating, Noncapital financing, Capital financing, and investment) remain unchanged. Many nonoperating revenue and expenses could be categorized as shown in the table below. Everything that does not specifically get categorized under Noncapital, Capital and Investing will be included in Operating section.
Nonoperating Revenues and Expenses Cash Flow Statement Section
Subsidies Cash flow from noncapital financing activity
Contributions to permanent and term endowments Cash flow from noncapital financing activity
Revenue/Expense related to Financing (capital related) Cash flow from Capital and Related Financing Activities 
Revenue/Expense related to Financing (noncapital related) Cash flow from noncapital financing activity
Resources from disposal of capital assets and inventory Cash flow from Capital and Related Financing Activities
Investment income and expenses Cash flow from Investing Activities

GASB also clarifies additional action when there’s inconsistency of reporting between Statement of the Statement of Revenues, Expenses, and Changes in Net Position and the Statement of Cash Flow at question 4.1 of Implementation Guide 2025-1. The question states that transactions that are reported as part of operating income in the Statement of Revenues, Expenses, and Changes in Net Position, but that are not reported in the operating activities section of the Statement of Cash Flows, should be presented as a reconciling item in the reconciliation of operating income to net cash flow from operating activities. GASB provides an example from question 4.1 - “in circumstances in which a finance authority reports interest income as a component of operating income and reports the cash received from interest income in the investing activities category, the reconciliation of operating income to net cash flow from operating activities should begin with reported operating income, and the interest income amount should be deducted as a reconciling adjustment to operating income, similar to depreciation.” (Also refer to Question 2.25.1 in Implementation Guide 2015-1 for previously issued guidance.)

Implementation Consideration: 

  • Proprietary Fund Statement of Revenues, Expenses, and Changes in Fund Net Position (NC ACFR 53P or RPT-RTR-113) shall be revised to GASB 103 Presentation. Refer to the Table 1.1 in Appendix A in this document. 
  • Several ACFR packages shall be updated to reflect GASB 103 implementation such as
    • Primary government/component units ACFR package (e.g. Worksheet 905/910, 905 Roll up table, etc.). 
    • The ‘ExhA&B’ tab of Community college ACFR package
    • Cash Flow Worksheets for primary government and community college:  
      • 1)    Different presentations including the movement of several accounts. For example, Transfer in and out account at ‘Exh B’ tab are moved from ‘nonoperating revenues’ section to ‘noncapital subsidies’ section.
      • 2)    Reconciling items when inconsistencies in reporting between SRECNP and Cash Flow statement. 
  • All state agencies shall consider revising their Statement of Revenues, Expenses and Changes in Net Position and Cash Flow statements or Statement of Activities to GASB 103 format on your standalone financial statements.
  • Review the definition of nonoperating revenues and expenses to determine if a transaction may meet the new definition such as Pell grant revenue is considered operating revenue, rather than a subsidy. It is reported under ‘Federal grants and contracts’ account per GASB 103, previously under ‘noncapital grant revenue’ account.

Major Component Unit Information

The presentation of major component unit information has changed as part of Statement 103.  Major component units of a reporting entity should be presented in the reporting entity’s statement of net position and statement of activities as separate columns if it does not have a negative effect on the readability of the statements.

If this presentation due to volume or complexity impacts readability, then a combining statement of net position and statement of activities may be presented as the last part of the basic financial statement section.

This change in presentation will enhance comparability across different reporting entities by standardizing the placement of major component unit financial information.

Beginning with the fiscal year ending June 30, 2026, the presentation of major component unit financial information will be relocated from a note disclosure in the notes to the financial statements to a set of combining statements that will be numbered B-8 and B-9 in the State’s Annual Comprehensive Financial Report (ACFR).

Other state entities that present component unit financial information in their financial statements should relocate this financial information consistent with Statement 103, if applicable.

Budgetary Comparison Information

The new requirements in Statement 103 establish that the budgetary comparison schedules for the general fund and each major special revenue fund that has a legally adopted annual budget should contain separate columns for:

  • The variance between the Original and Final Budget amounts
  • The variance between Final budget and actual results.

An explanation for significant variances for the Original and Final budgets and significant variations between the Final Budget and Actual results are required to be presented into the notes of the schedule. The discussion of the variances was previously included in the MD&A but are moved to the notes to the budgetary comparison schedule.

Impacts:

  • The Budgetary Comparison schedule for the ACFR will include a column for the variance between Original and Final Budget amounts. 
  • Disclosures to the Budgetary Comparison schedule will include a discussion of the variances. 
  • More details to come on discussion of these variances

Additional Information and Considerations

Statement 103 is required to be implemented for fiscal year end June 30, 2026. This statement should be applied prospectively.

For additional information please refer to the official GASB website to access the Financial Reporting Model Improvement standard in its entirety and additional implementation guidance. 

Thank you for your time and attention to this important change. OSC will continue to provide updates as the standard is implemented. Questions regarding this specific update should be directed to following individuals:

APPENDIX

VIEW Appendix A

Effective Fiscal Year

2026