GASB 103 Implementation: What to Change for June 30, 2026, Financial Statements

For governments with a June 30 year-end, Governmental Accounting Standards Board (GASB) Statement No. 103, Financial Reporting Model Improvements, is required beginning with the June 30, 2026, financial statements. GASB 103 updates the financial reporting model established by GASB Statement No. 34.

GASB 103 is effective for fiscal years beginning after June 15, 2025. For preparers, the changes are primarily to presentation and classification: a restructured management’s discussion and analysis (MD&A); unusual or infrequent items in place of extraordinary and special items; a new format for the proprietary fund operating statement that separately reports noncapital subsidies; separate presentation of major component units; and budgetary comparisons presented only as required supplementary information (RSI). Governments report implementation as a change in accounting principle under GASB Statement No. 100.

Component units with a different fiscal year end implement GASB 103 in the fiscal year that is included in the primary government’s implementation year. For example, a component unit with a December 31 year-end that is included in a June 30, 2026, primary government implements GASB 103 for its December 31, 2025, financial statements (Implementation Guide (IG) No. 2025-1, Q4.16 was effective upon issuance).

Two implementation guides are also relevant. IG 2025-1 is effective in the same year as GASB 103. IG 2026-1, which addresses subsidies and was issued in September 2026, is not required for June 30, 2026, financial statements but is a helpful reference (discussed below). GASB 103’s requirements have not changed since its issuance, and its key requirements are summarized below in the order presented in the Statement.

Key Takeaways

• GASB 103 applies to fiscal years beginning after June 15, 2025, so governments with a June 30 year-end first apply it to their June 30, 2026, financial statements.
• GASB 103 primarily changes the presentation and classification.
• The revised management’s discussion and analysis (MD&A) has five sections and explains why balances and results changed, rather than restating amounts already in the statements.
• Proprietary funds must classify revenues and expenses as operating, noncapital subsidy, or other nonoperating, and the operating statement now includes a new subtotal for operating income (loss) and noncapital subsidies.
• Unusual or infrequent items replace extraordinary and special items, and the government’s environment, not the dollar amount, determines whether an item qualifies.
• Governments must now present budgetary comparison schedules only as required supplementary information (RSI), and they can no longer report condensed major component unit information in the notes.

What Are the Key Requirements of GASB 103?

GASB 103 Changes to Management’s Discussion and Analysis

MD&A remains RSI, but its content is now limited to five sections:

1. Overview of the financial statements, including how the statements are structured and relate to one another.
2. Financial summary of condensed government-wide information for governmental and business-type activities, comparing the current and prior year.
3. Detailed analyses of the primary government and each major fund, explaining why the results changed.
4. Significant capital asset and long-term financing activity, including capital asset additions and disposals; debt, leases, public-private partnerships (PPPs), and subscription-based IT arrangements (SBITAs); and credit rating and debt limit changes.
5. Currently known facts, decisions, or conditions, such as items expected to significantly affect the subsequent period, financial position, or results.

Explain the “why” and avoid duplication. The central theme of the revised MD&A is to explain why balances and results changed from the prior year and by how much, rather than simply restating amounts already in the statements. Use plain language and avoid boilerplate and repetition: The major fund analysis should focus on explanations that differ from the primary government analysis, and both should refer to the capital asset and long-term financing section rather than repeat it. Information outside the five sections (e.g., history or mission) belongs elsewhere, such as in the letter of transmittal, if applicable.

Comparative years. Prior-year MD&A amounts need not be restated for the new classifications unless the prior year is also presented in the basic financial statements. With a complete set of comparative statements, notes, and RSI, the MD&A covers both years, including three years of data (the current year, the prior year, and the year preceding the prior year) and analysis of both periods of change (GASB Codification 2200.704-3). With only comparative data, such as prior-year total columns, MD&A covers the current year compared with the prior year (2200.704-4, as amended by GASB 103).

What was removed from MD&A. GASB 103 removes (1) the analysis of significant budget variations, now in the notes to RSI, and (2) the discussion of infrastructure reported using the modified approach (the related RSI schedules are still required). GASB 34’s separate analyses of the overall financial position and individual funds are combined into a single detailed analysis section.

What Counts as an Unusual or Infrequent Item?

GASB 103 replaces the terms “extraordinary” and “special items” with “unusual or infrequent items.” An item qualifies if it is either unusual in nature (highly abnormal and clearly unrelated, or only incidentally related, to ordinary activities) or infrequent in occurrence (not reasonably expected to recur in the foreseeable future), considering the government’s environment. Present each item separately, without netting, as the last item(s) before the net change in resources in the government-wide, governmental fund, and proprietary fund statements, and disclose the related program, function, or activity and whether the item was within management’s control. The government’s environment matters more than the dollar amount. For a government on the US Gulf Coast, hurricane and tropical storm damage and related Federal Emergency Management Agency (FEMA) reimbursements generally would not qualify because these storms are reasonably expected to recur. In contrast, costs from an event that is not expected to recur in that environment, such as a large sinkhole or an industrial explosion that forces a community evacuation, may qualify.

How Does GASB 103 Change the Proprietary Fund Statement?

For governments with proprietary funds, this change typically requires the most implementation effort. Revenues and expenses must be classified as (1) operating, (2) noncapital subsidy, or (3) other nonoperating, and presented in this order:

1. Operating revenues and expenses, and operating income (loss)
2. Noncapital subsidies - new section
3. Operating income (loss) and noncapital subsidies - new required subtotal
4. Other nonoperating revenues and expenses, including capital subsidies and capital contributions
5. Income (loss) before unusual or infrequent items, unusual or infrequent items, and increase (decrease) in fund net position

Operating versus nonoperating. Nonoperating is now a defined list: subsidies; contributions to permanent and term endowments; financing-related revenues and expenses; resources from the disposal of capital assets and inventory; and investment income and expenses. Everything else is operating, unless an otherwise nonoperating item is part of the fund’s principal ongoing operations (e.g., interest revenue of a fund whose main activity is making loans).

Subsidies. GASB 103 defines subsidies as (a) resources received from another party or fund that receives no goods or services in return, when those resources directly or indirectly keep the fund’s current or future fees and charges lower than they otherwise would be; (b) resources provided to another party or fund that provides no goods or services in return, when those resources are recoverable through the fund’s current or future pricing; and (c) all other transfers. As a result, transfers in from and transfers out to other funds are always subsidies, even if they do not meet (a) or (b). Subsidies that the provider limits to capital purposes, such as transfers restricted for capital assets, are capital subsidies and are reported as other nonoperating revenues and expenses; all other subsidies, including unrestricted transfers in and out, are noncapital. IG 2026-1, discussed below, provides additional guidance on applying this definition.

Common items to review. Grants that meet the subsidy definition are noncapital subsidies unless restricted to capital purposes, while grants for which the grantor receives goods or services are operating revenues. Lease interest is reported in other nonoperating revenues and expenses (IG 2025-1, Q4.3). Pell Grants are operating revenues (GASB Comprehensive Implementation Guide, Q7.72.10, as amended by GASB 103). Capital contributions are reported within other nonoperating revenues and expenses rather than as a separate section.

Are property and sales taxes subsidies? Yes, when reported by a proprietary fund or business-type activity (IG 2026-1, Q4.4). Taxpayers receive no goods or services in return, and the taxes help keep fees and charges lower. Taxes transferred in from the general government are also subsidies. They are noncapital unless restricted to capital purposes or capital-related debt service, in which case they are reported as other nonoperating revenues.

Helpful guidance: IG 2026-1, Financial Reporting Model Improvements - Subsidies. IG 2026-1 is effective for fiscal years beginning after June 15, 2026 (June 30, 2027, year- ends) and is not required for June 30, 2026, but its questions and answers clarify the GASB 103 subsidy definition. Earlier application is encouraged, and because IG 2026-1 applies retroactively, considering it now may avoid reclassifying items again in fiscal year 2027. Key clarifications include:

• Higher education: scholarship donations are subsidies, even if published tuition does not change; research grants depend on the facts, and many are not subsidies because the grantor receives goods or services (Q4.1-4.3).
• Taxes and airport charges: taxes reported by a business-type activity, including derived tax revenues such as sales taxes and imposed nonexchange revenues such as property taxes, as well as airport passenger facility charges, are subsidies (Q4.4-4.5).
• Capital versus noncapital: capital subsidies, including resources the provider limits to debt service on capital-related debt, are other nonoperating revenues and expenses (Q4.6-4.7). A subsidy is noncapital unless the provider or another external limitation, such as legislation, restricts it to capital purposes; spending it on capital assets does not make it capital (Q5.1, amending IG 2025-1, Q4.5).

Major Component Unit Information

Each major component unit is presented separately in the government-wide statements unless that would reduce readability; in that case, a combining statement of major component units is presented immediately after the fund financial statements. Presenting condensed major component unit information in the notes is no longer an option.

Budgetary Comparison Information

Budgetary comparison schedules for the general fund and major special revenue funds with legally adopted annual budgets must be presented as RSI; the basic financial statement option is eliminated. Schedules include original-to-final and final-to-actual variance columns, with significant variations explained in the notes to RSI.

Financial Trends Information in the Statistical Section

Governments engaged only in business-type (or business-type and fiduciary) activities present revenues by major source in their changes in net position trend data, distinguishing operating revenues, noncapital subsidies, and other nonoperating revenues and expenses.

GASB 103 Implementation Reminders

Notes and cash flows. Disclose the change in accounting principle, the line items affected, and the pronouncement implemented (GASB 100). Beginning net position is generally not restated because the changes affect classification and presentation. Update the accounting policy note for the new definitions. Cash flow categories do not change, but items in operating income that are reported outside operating activities are reconciling items in the operating cash flow reconciliation (IG 2025-1, Q4.1). GASB 104, Disclosure of Certain Capital Assets, is also effective for June 30, 2026..

Use the GASB 103 illustrations as a guide, not a template. Appendix C of GASB 103 (Exhibits 1-14), including an illustrative MD&A, proprietary fund statement, and budgetary comparison schedule, is helpful for implementation but is nonauthoritative. It is neither Category A (GASB Statements) nor Category B (e.g., Implementation Guides) GAAP under GASB Statement No. 76 and does not modify the Statement’s requirements. Tailor the presentation and wording to your government’s facts rather than copying the illustrations verbatim, especially in MD&A, where boilerplate is discouraged.

How EisnerAmper Can Help with GASB 103

As June 30, 2026, financial statements are prepared, governments should complete their GASB 103 review now to enhance the clarity and usefulness of their financial reporting. EisnerAmper’s government practice assists governments with implementing GASB 103 through guidance on the new requirements, group training and workshops for financial staff, and templates tailored to your organization’s needs. Contact us below to learn how we can help you.