Governmental accounting and the GASB reporting model: Statement 34 and Statement 103

• Identify the components of a government's basic financial statements and required supplementary information
• Distinguish the government-wide statements from the fund financial statements
• Explain the changes GASB Statement No. 103 makes and when they take effect
• Plan which statements and schedules an audit of a government must cover

Who writes the rules

The Governmental Accounting Standards Board (GASB) sets generally accepted accounting principles for state and local governments: states, counties, cities, school districts, special districts, public utilities, public universities and similar entities. The Financial Accounting Standards Board covers businesses and not-for-profit organizations that are not governments. Staff who move from commercial audits to a city or school district need to reset their vocabulary on day one. A government reports net position rather than equity, fund balance rather than retained earnings, and deferred outflows and inflows of resources as separate elements of the statement of net position. The GASB vs FASB comparison lays the two models side by side.

The Statement 34 reporting model

GASB Statement No. 34 (June 1999) built the model still in use. It has four layers:

• Management's discussion and analysis (MD&A), presented before the basic financial statements as required supplementary information (RSI).
• Government-wide financial statements: a statement of net position and a statement of activities. They use the economic resources measurement focus and the accrual basis, and they report governmental activities and business-type activities of the primary government, plus discretely presented component units. Fiduciary activities are left out because those resources cannot support the government's own programs.
• Fund financial statements: separate statements for governmental funds, proprietary funds and fiduciary funds. Governmental and enterprise funds are reported by major fund, with nonmajor funds aggregated in one column.
• Notes and RSI other than MD&A, such as budgetary comparisons, pension and OPEB schedules, and infrastructure condition information for governments that use the modified approach.

The statement of activities uses a net (expense) revenue format. Each function's expenses are reduced by its program revenues (charges for services, operating grants and contributions, capital grants and contributions). Taxes and other general revenues are reported below, against the total net cost. A reader can see how much of each function the general taxpayer pays for.

Two lenses on the same government

The government-wide statements answer "what does the government own and owe over the long term?" The governmental fund statements answer "what spendable resources came in, went out and remain?" Because the two use different measurement focuses, Statement 34 paragraph 77 requires a summary reconciliation between them. Lessons 3 and 4 work through that bridge.

Statement 103: Financial Reporting Model Improvements

GASB Statement No. 103 is effective for fiscal years beginning after June 15, 2025, and all reporting periods after that; earlier application is encouraged. A government with a June 30 year end first applies it for the year ending June 30, 2026; a calendar-year government for the year ending December 31, 2026. The changes:

• MD&A is limited to five sections: Overview of the Financial Statements, Financial Summary, Detailed Analyses, Significant Capital Asset and Long-Term Financing Activity, and Currently Known Facts, Decisions, or Conditions. The detailed analyses must explain why balances and results changed rather than restate the amounts or percentages, and boilerplate is to be avoided.
• Unusual or infrequent items replace the old extraordinary and special item categories. Each item is displayed separately as the last flow before the net change in resource flows in the government-wide, governmental fund and proprietary fund statements.
• Proprietary fund operating statements keep the operating and nonoperating split, with nonoperating items defined as subsidies, contributions to endowments, financing revenues and expenses, resources from disposal of capital assets and inventory, and investment income and expenses. Noncapital subsidies (the definition of subsidies includes transfers) follow operating income (loss), and a new subtotal, operating income (loss) and noncapital subsidies, comes before the other nonoperating items.
• Major component units are each presented separately in the statement of net position and statement of activities, unless that reduces readability; then combining statements follow the fund statements.
• Budgetary comparison information is presented only as RSI, with variances between original and final budget and between final budget and actual, and an explanation of significant variances in notes to RSI.

What this means for the audit plan

The auditor's opinion covers the basic financial statements. MD&A and other RSI receive limited procedures and are not opined on. Supplementary information such as combining nonmajor fund statements gets an in-relation-to opinion. So the first planning step on any government audit is to list the statements, the major funds and the component units, because those drive opinion units, materiality and the procedures that follow. The fund accounting guide and the Yellow Book guide cover the audit side.

Applying Statement 103 to two fiscal years