GASB 103: A Practical Update for City Governments

City governments are no strangers to new accounting standards, but not every GASB statement changes day-to-day accounting in a major way. GASB Statement No. 103, Financial Reporting Model Improvements, is one of those standards that is less about changing how cities record transactions and more about improving how financial information is presented and explained in their annual reports. It focuses on making city financial statements clearer, more consistent, and easier for users to understand. The standard affects areas such as Management’s Discussion and Analysis (MD&A), proprietary fund reporting, unusual or infrequent items, component unit presentation, and budgetary comparison information. It is effective for fiscal years beginning after June 15, 2025, with early implementation allowed.

Why GASB 103 matters

For many cities, GASB 103 will not require major new journal entries or a complete overhaul of the accounting system. Instead, it will require governments to take a closer look at how they communicate financial results. In practice, that means less boilerplate language, better explanations of why balances changed, and clearer classifications within the financial statements. The purpose is to improve the usefulness of the report for readers such as governing boards, taxpayers, grantors, lenders, and auditors.

A new approach to MD&A

One of the most noticeable changes under GASB 103 is the revised approach to the MD&A. The statement now organizes the MD&A into five required sections: an overview of the financial statements, a financial summary, detailed analyses, significant capital assets and long-term financing activity, and currently known facts, decisions, or conditions.

For cities, this means the MD&A should be more than a repeat of the financial statements. Readers should be able to understand why sales tax changed, why public safety costs increased, or why fund balance shifted from one year to the next. GASB 103 is designed to move cities away from generic wording and toward more meaningful financial analysis.

Enterprise funds will need review

Cities with enterprise funds such as water, sewer, gas, sanitation, airport, parking, or stormwater operations should pay close attention to GASB 103. The standard keeps the operating versus nonoperating distinction but provides clearer rules for what should be reported as nonoperating. Nonoperating items include subsidies, financing-related revenues and expenses, investment income and expense, certain gains and losses on disposals, and contributions to endowments. GASB 103 also requires a subtotal for operating income (loss) and noncapital subsidies. This means cities may need to revisit how proprietary funds classify transfers, general fund support, interest income, interest expense, and gains or losses on capital asset disposals. A utility fund’s operating results should reflect actual operations as clearly as possible.

Unusual or infrequent items must stand out

Another important change is the separate presentation of unusual or infrequent items. These are transactions or events that are not part of ordinary activity and should be shown separately near the bottom of the relevant flow statement rather than blended into normal revenues or expenses. The standard also requires note disclosures explaining the nature of the item, the program or function affected, and whether management had control over the underlying event.

For a city, this could include a rare major legal settlement, a significant casualty loss, or another unusual one-time event. The goal is to make sure users can distinguish between recurring operations and isolated items.

Budgetary comparison reporting becomes more consistent

Budgetary comparison information continues to be presented as required supplementary information, but GASB 103 standardizes what should be shown. The schedule should include the original budget, final budget, actual results, the variance between original and final budget, and the variance between final budget and actual amounts. Significant variances should also be explained in notes to RSI.

For cities, this reinforces the need to go beyond simply presenting the numbers. If grant revenue exceeded budget because of new awards late in the year, or if expenditures were below budget because a capital project was delayed, the report should explain that clearly.

Component units may need a second look

Cities that report component units should also review how those entities are presented. GASB 103 says major component units generally should be shown separately in the reporting entity’s statement of net position and statement of activities unless that would reduce readability too much. If separate presentations in the basic statements become too cumbersome, combining information should be presented after the fund financial statements.

For cities with utility boards, industrial development boards, housing entities, or similar organizations, this may affect the layout and clarity of the financial statements.

What cities should do now

The best approach is to begin preparing early. Cities should review current financial statement templates and focus on a few key questions:

• Are MD&A explanations meaningful, or are they mostly boilerplate?
• Do enterprise funds classify operating and nonoperating items consistently?
• Are unusual or infrequent items identified clearly?
• Do budgetary comparison schedules include all required columns and variance explanations?
• Is component unit presentation easy to follow?

For many cities, the biggest effort will not be in changing the accounting records but in improving how the final report is organized and explained.

Final takeaway

GASB 103 is best viewed as a reporting improvement standard. It is intended to make city financial statements more transparent, more consistent, and easier for readers to understand. Cities that begin reviewing their current presentation now will likely have smoother implementation and a stronger final report when the standard becomes effective.

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