Executive Summary
GASB has issued an Exposure Draft of Proposed Implementation Guide, Financial Reporting Model Improvements–Subsidies, related to Statement 103, Financial Reporting Model Improvements, which contains eight new questions and answers intended to help users understand and apply new guidance in accounting for subsidies, as defined by Statement 103.
GASB 103 provides clarified definitions of operating and nonoperating activities and presentation requirements on the statement of revenues, expenses, and changes in net position. Nonoperating revenues and expenses include five specific categories of items, one of which is subsidies received and provided. Based on stakeholder feedback, GASB has identified the need for further clarification related to the application of the term “subsidies” to certain types of transactions.
While the guidance applies broadly to all proprietary funds and business-type activities, there is one proposed question that may be particularly relevant for governmental healthcare entities related to classification of supplemental payments provided by a government. The proposed question indicates supplemental payments that are not part of any contractual relationship between the patient and the government for healthcare coverage should be considered subsidies under Statement 103. The determination of these supplemental payments as subsidies results in presentation as nonoperating revenues in a governmental healthcare provider’s statement of revenues, expenses, and changes in net position.
Supplemental Payments – Nonoperating Subsidies?
GASB Statement 103 defines subsidies as “resources received for which the entity does not provide goods or services and that directly or indirectly allow fees and charges to be lower than they would otherwise be.” The February 2026 proposed Implementation Guide includes a question that directly addresses supplemental payments received by governmental healthcare entities, concluding that they meet the definition of subsidies because they meet the following criteria:
- They are not related to goods or services provided under a contractual relationship between the patient and governmental healthcare provider for healthcare coverage, and
- They allow the hospital’s current or future charges to be lower than they would be otherwise.
Accordingly, under the proposed guidance, Medicaid base payments directly associated with patient services would continue to be reported as operating revenues, while supplemental payments that meet the above criteria would be classified as noncapital subsidies and presented outside of operating income (loss).
The question and answer in the proposed Implementation Guide is generic, in that it does not specify any particular supplemental payment programs, and it also does not address classification or presentation of any program assessments, intergovernmental transfers, provider taxes, or other outflows generally associated with participation in supplemental payment programs.
Financial Statement Presentation Implications
Although the proposed guidance does not change any recognition or measurement criteria, and thus should not impact the total revenues or change in net position reported by a governmental healthcare provider, there are financial reporting implications that include the following:
- Reduced operating revenues and, as a result, reduced operating income (loss), as supplemental payments are moved out of operating results
- Increased prominence of noncapital subsidies as nonoperating activities
The relocation of these revenues within the financial statements may significantly change how financial performance is perceived by users of an organization’s financial statements. The removal of supplemental program revenues from operating revenues may widen the gap between reported operational profitability as significant revenue sources are designated as nonoperating activities. Entities should also review applicable debt covenant arrangements to consider impacts on compliance.
In addition, this proposed guidance represents a potential diversion between GASB and FASB financial reporting for supplemental program revenues, reducing comparability and raising additional challenges for financial statement users when evaluating entities across reporting frameworks.
Other Topics
The proposed Implementation Guide also includes questions regarding research grants, donations for scholarships, taxes imposed by certain reporting entities, passenger facility charges received by airports, and the classification and reporting of subsidies. Consider reading the full exposure draft for topics that may impact you and your organization.
View the proposed Implementation Guide for more details.
Effective Date & Transition
The Implementation Guide as proposed will be effective for fiscal years beginning after June 15, 2026, with earlier application encouraged. GASB intends to issue this implementation guidance in final form prior to June 30, 2026, so that financial statement preparers can implement it before the effective date of Statement 103.
The requirements of the proposed Implementation Guide, once final, should be applied retrospectively with changes, if any, reported as a change in accounting principle in accordance with GASB Statement 100, Accounting Changes and Error Corrections.
Importance of Provider Feedback
GASB has explicitly requested stakeholder feedback on the proposed guidance, as implementation guides may be modified prior to final issuance. Governmental healthcare providers may wish to evaluate how the proposed clarification affects their financial reporting and consider submitting comments.
Written comments are due on April 27, 2026 and should focus on:
- Whether the clarification appropriately reflects the substance of supplemental program payment arrangements
- Operational or communication challenges created by reclassifying these revenues
- Any unintended consequences for financial statement users
GASB has made the feedback process more convenient than ever; you can fill out an online feedback form, or you can submit a formal comment letter. Whether you provide feedback online or through a letter, we recommend that you share your feedback with GASB during this critical standard-setting process.
How Forvis Mazars Can Help
If you have questions about GASB 103 or need assistance with implementation, please reach out to our team today.