Welcome to our two-part series on GASB 103: Financial Model Improvements. In our first article, we provided an overview of it with an emphasis on its impact on budgetary comparisons. In this article, we’ll look at the changes to proprietary fund reporting.
But first, if you are new to GASB 103, here’s an overview of the Statement.
What Is GASB 103?
Governmental Accounting Standards Board Statement No. 103 (GASB 103) is a new Statement issued to address financial reporting model improvements. It was issued in April 2024 and takes effect for fiscal years beginning June 15, 2025. Local governments should review the full text of the original GASB 103, linked above, to ensure they fully understand the new requirements. It is also a good idea to prepare your teams for the transition to the new reporting requirements.
GASB 34 Remains in Effect
GASB 103 does not significantly change the accounting basis or presentation of financial information for government entities.
GASB has spent the past 10 years examining “GASB Statement No. 34 Basic Financial Statements – and Management’s Discussion and Analysis – For State and Local Governments” to determine how effective it has been.
Thankfully, their findings seem to indicate that it is working well. Instead of revising 34, GASB introduced targeted improvements to financial reporting in Statement 103.
Main Ideas in GASB 103
The main ideas in GASB 103 are transparency and accountability.
All of the required changes focus on making information easily understood by your constituents. The emphasis throughout is to ensure jargon-free, clear, and concise reporting, including why information has changed (not just the fact that it did change).
Transparency and accountability are watchwords affecting all nonprofits, including local governments. Constituents and stakeholders demand that their government be accountable, open, and honest about financial stewardship.
Taxpayers are demanding greater insights into how their hard-earned money is spent. Everyone wants to know how their fees - parks and rec passes, dog licenses, parking fees, and more - are spent. The new reporting requirements seek to make it easier for citizens to understand this information.
Key updates found in GASB 103 include:
- Management’s Discussion and Analysis (MD&A): The Statement defines and requires a structured approach to presenting financial activities. The goal is to ensure clarity and avoid unnecessary repetition.
- Unusual or Infrequent Items: The new rule requires separate displays of inflows and outflows related to unusual or infrequent items in financial statements.
- Budgetary Comparisons: Several changes aim to make budgetary comparisons more informative and easier to understand.
- Proprietary Fund Statement Presentation: Continues the distinction between operating and nonoperating revenues and expenses, and changes how the information is reported.
Proprietary Funds
When governments provide services to citizens and charges for them, the fees are classified as proprietary funds. The same goes for providing services to internal customers and charging them. Some examples of enterprise proprietary funds are utilities, parking fees, and waste disposal fees. Internal service funds may include fleet management, maintenance departments, and IT support.
These funds are more like business funds, or how businesses generate and report income. For example, they follow the accrual method of accounting, which is generally used by businesses.
Proprietary Fund Statement Presentation
GASB 103 continues to distinguish between operating and non-operating revenues and expenses in proprietary fund financial statements. This distinction impacts the presentation of revenues, expenses, and changes in fund net position.
Definition of Operating and Non-operating Revenues and Expenses
GASB 103 defines operating and non-operating revenues and expenses as follows: “Operating revenues and expenses are defined as revenues and expenses other than nonoperating revenues and expenses. Nonoperating revenues and expenses are defined as (1) subsidies received and provided, (2) contributions to permanent and term endowments, (3) revenues and expenses related to financing, (4) resources from the disposal of capital assets and inventory, and (5) investment income and expenses.”
New Reporting Requirement
Proprietary fund statements currently require subtotals of revenues, expenses, and changes in fund net position. The new GASB Statement requires that a subtotal for operating income (loss) and noncapital subsidies be presented before reporting other nonoperating revenues and expenses. As with other changes made through this new GASB Statement, the goal is to provide clear information to the constituents.
Summary of GASB 103 Changes
To recap from our article series, here are the main changes found in GASB 103 :
1. Management’s Discussion and Analysis (MD&A) Refinements
- Requires a more structured approach with five defined sections.
- Focuses on explaining why financial changes occurred, not just what changed.
- Discourages unnecessary repetition and generic discussions.
2. Unusual or Infrequent Items
- Transactions that are either unusual or infrequent must be separately displayed.
- Eliminates the previous distinction between extraordinary and special items.
3. Budgetary Comparison Information
- Budgetary comparison schedules are now mandatory for general funds and major special revenue funds.
- Must be presented as Required Supplementary Information (RSI) instead of in basic financial statements.
- Requires columns showing variances between original and final budget amounts, plus explanations for significant variances.
4. Proprietary Fund Statement Presentation
- Continues the distinction between operating and nonoperating revenues and expenses.
- Defines nonoperating revenues and expenses more clearly, including subsidies received or provided.
5. Improved Financial Transparency
- Encourages governments to present financial information in a way that is understandable to the average person.
- Requires explanations of known facts, decisions, or conditions expected to impact future financial periods.
Local governments build trust with the people they serve by being open, honest, and transparent. The goal of GASB 103 is to make government financial reporting easier for the average citizen to understand. As we have seen over the past several years, citizens demand that governments “pull back the curtain” on their finances. People want to see not just how much their local government has collected and spent, but what they have spent it on. They want to know that their money is used wisely. By clarifying and refining financial reporting requirements, GASB underscores this theme of honesty, transparency, and clarity in local government financial reporting.
AccuFund Government Accounting Software
AccuFund offers government accounting software that supports clear, transparent local government reporting. It enables you to report on key aspects of government finance. Integration with other systems enables you to draw data from other platforms into AccuFund for reporting and financial management. This purpose-built government accounting software enables local governments to serve constituents better with excellent customer service and reliable, accurate financial data.
Related Materials
GASB 103 Part 1: Changes Impacting Local Governments
AccuFund Government Accounting Product Webinar
White Paper: Critical Considerations for Purchasing a Government Accounting System