The effective date for GASB Statement No. 103, Financial Reporting Model Improvements (GASB 103), has arrived. For reporting periods beginning on or after June 15, 2025, the changes within the standard will apply to the financial statements of all state and local governments, including governmental healthcare entities.
GASB 103 updates the requirements for certain key areas of the financial reporting model, including management’s discussion and analysis (MD&A), unusual and infrequent items, the proprietary fund statement, component units, budget presentation, and financial trends information.
This article provides details on what you should know.
1. Impact on MD&A
Basic financial statements will continue to be preceded by MD&A, which is presented as required supplementary information (RSI). GASB 103 reshapes MD&A into five required areas:
- Overview of the Financial Statements. An overview of the basic financial statements, including the relationships of the statements to each other. The overview should focus on the significant differences in the types of information the financial statements provide.
- Financial Summary. Condensed financial information is derived from the governmentwide financial statements comparing current and prior years. Healthcare entities should present the information needed to support their analysis of the financial position and results of operations.
- Detailed Analyses. Detailed analyses of financial position and results of operations summarizing significant changes reported in the financial statements. Do not just report the amounts or percentages of significant changes; explain why those changes from the prior year occurred and the magnitude of those changes. Details should include facts, decisions, or conditions about which the user may not be aware, with the understanding that not all users may be from the entity’s geographical area. For example, the analyses might include explanations such as shifts in Medicaid reimbursement, expansion of service lines, or changes in patient volumes.
- Significant Capital Asset & Long-Term Financing Activity. Include descriptions of significant capital-related activity during the year, including both fixed assets and certain intangible assets (such as right-to-use assets related to lease arrangements, public-private partnerships (PPPs), and subscription-based information technology arrangements (SBITAs)). Include descriptions of significant long-term financing activity during the year, including debt, leases, PPPs, and SBITAs. These descriptions should address any significant policy changes and economic factors relevant to the year’s capital asset or financing activity.
- Currently Known Facts, Decisions, or Conditions. A description of currently known facts, decisions, or conditions that are expected to have a significant effect on financial position (net position) or that are expected to produce significant differences from current-period results of operations. Examples could include trends in relevant economic data, such as labor shortages or wage pressures; relevant factors used to develop next year’s budget, such as changes in contracts; the expansion/reduction of supplemental payment programs; or changes in long-term financing that will affect the entity in a future period.
Throughout MD&A, entities should avoid unnecessary duplication by not repeating explanations that may be relevant to multiple sections. In addition, “boilerplate” discussions should be avoided by presenting only the most relevant information, focused on the primary government. GASB 103 continues the requirement that information included in MD&A distinguishes between that of the primary government and its discretely presented component units.
2. Updates to Unusual or Infrequent Items
GASB 103 eliminates the categories of special and extraordinary items with a more streamlined approach to reporting unusual or infrequent items. GASB 103 now describes unusual or infrequent items as transactions and other events that are either unusual in nature or infrequent in occurrence. Entities will be required to display the inflows and outflows related to each unusual or infrequent item separately as the last presented flow(s) of resources prior to the net change in resource flows. Entities should disclose in notes to financial statements the program, function, or identifiable activity to which an unusual or infrequent item is related, if applicable, and whether that item is within the control of management.
3. Updates to the Presentation of the Proprietary Fund Statement of Revenues, Expenses, & Changes in Fund Net Position
GASB 103 requires that the statement of revenues, expenses, and changes in net position continue to distinguish between operating and nonoperating expenses, and adds the new reporting requirement for noncapital subsidies, which must be presented separately. GASB 103 defines operating revenues and expenses as any revenues or expenses that do not meet the definition of nonoperating revenues and expenses. Nonoperating revenues and expenses are defined as:
- Subsidies received and provided
- Contributions to permanent and term endowments
- Revenues and expenses related to financing
- Resources from the disposal of capital assets and inventory
- Investment income and expenses
Prior to GASB 103, the term “subsidies” was not defined in the codification. GASB 103 defines “subsidies” for the first time as:
- Resources received from another party or fund
- for which the proprietary fund does not provide goods and services to the other party or fund, and
- 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
- for which the other party or fund does not provide goods and services to the proprietary fund, and
- that are recoverable through the proprietary fund’s current or future pricing policies
- All other transfers
While GASB 103 does not impact the timing of recognition and measurement of revenues, it does affect the presentation and geographical location of certain healthcare-specific revenues within the financial statements. Certain healthcare-specific revenue sources for potential consideration as nonoperating revenues under GASB 103 include sales tax revenues, property tax revenues, supplemental payment programs, grants, and contributions. Additional guidance for some of these healthcare-specific items (such as supplemental payment programs) has not been provided at this time.
GASB 103 generally will not change the presentation of net patient service revenues as operating revenues, and the 2025 Comprehensive Implementation Guide Update clarified that payments received from third-party payors on behalf of patients for services rendered are not considered subsidies.
With these changes considered, the statement of revenues, expenses, and changes in net position should present the following information in the order shown:
- Operating revenues (detailed)
- Total operating revenues
- Operating expenses (detailed)
- Total operating expenses
- Operating income (loss)
- Total operating expenses
- Noncapital subsidies (detailed)
- Total noncapital subsidies
- Operating income (loss) and noncapital subsidies
- Other nonoperating revenues and expenses (detailed)
- Total other nonoperating revenues and expenses
- Income (loss) before unusual or infrequent items
- Total other nonoperating revenues and expenses
- Total noncapital subsidies
- Unusual or infrequent items (detailed)
- Increase (decrease) in fund net position
- Fund net position—beginning of period
- Fund net position—end of period
4. Major Component Unit Information
GASB 103 eliminates the option to report information about major component units in the reporting entity’s financial statement notes and now requires governments to present each major component unit separately in the reporting entity’s statement of net position and statement of activities. There’s an exception: If the readability would be reduced, combining statements of major component units should be presented after the fund financial statements.
5. Budgetary Comparison Information
While not applicable to some healthcare entities, GASB 103 does include changes to budgetary comparison information for entities with a general fund and special revenue fund. GASB 103 now requires entities to present budgetary comparison information in RSI and not as a basic financial statement. Entities will be required to present both variances between original and final budget amounts and variances between final budget and actual amounts. Significant variances should be explained in notes to RSI.
6. Financial Trends Information
In the statistical section of separately issued financial reports, governments engaged only in business-type activities or only in business-type and fiduciary activities should present revenues by major source for their business-type activities, distinguishing between operating, noncapital subsidy, and other nonoperating revenues and expenses.
Conclusion
For some governmental healthcare entities, the adoption of GASB 103 could require significant hours to implement and will impact how they present financial information and communicate with stakeholders. Forvis Mazars can help educate your team, provide implementation tools, and assist with analysis and documentation. If you would like assistance complying with the new guidance, reach out to a professional at Forvis Mazars.