GASB 103 and 104: What Higher Education Institutions Need to Know

In 2024, the Governmental Accounting Standards Board (GASB) issued two significant standards that will impact public colleges and universities: GASB Statement No. 103 – Financial Reporting Model Improvements, and GASB Statement No. 104 – Disclosure of Certain Capital Assets. Both are effective for fiscal years beginning after June 15, 2025 (i.e., affecting fiscal year 2025–26 for June year-ends).

These updates aim to enhance clarity and transparency in financial reporting. Finance and accounting leaders in higher education should prepare for changes in financial statement presentation, MD&A content and capital asset note disclosures to ensure compliance and informative reporting.

GASB 103: Financial Reporting Model Improvements

GASB 103 culminates a long-running project to refine how governments present financial information. For public institutions of higher education (typically reported as enterprise or business-type activities), this standard brings several notable changes:

MD&A Focus and Content Restrictions

Perhaps the most visible change is to the Management’s Discussion and Analysis (MD&A). GASB 103 limits MD&A to five prescribed content areas, preventing the inclusion of extraneous topics. The required sections are:

(1) an overview of the financial statements and their interrelationships,

(2) a financial summary with condensed data comparing the current year to the prior year,

(3) detailed analyses of the institution’s financial position and results of operations (explaining significant changes and why they occurred),

(4) a description of significant capital asset and long-term debt activities during the year, and

(5) currently known facts, decisions, or conditions that are expected to significantly affect future finances.

Information not related to these five topics should be omitted from the MD&A going forward.

Under the new standard, the MD&A should be written for a broad audience and focus on analysis over narration. GASB 103 “lowers the target reader of MD&A to someone who may not know anything about governmental accounting” and emphasizes explaining the reasons behind year-over-year changes in finances. Redundancy is discouraged. For example, rather than restating numbers from financial statements, management should discuss why significant fluctuations occurred (e.g. enrollment increases driving up tuition revenue, board-approved tuition rate changes, new debt issuances, etc.).

Forward-looking information is still included but must be limited to items that could significantly affect future net position or operations (such as economic trends, known future budget actions or upcoming regulatory changes). Overall, the MD&A will become a tighter, more analytical narrative that complements the financial statements without duplicating them.

Revised Presentation of the Operating Statement (SRECNP)

GASB 103 introduces significant changes to the presentation of the proprietary fund operating statement, known for universities as the Statement of Revenues, Expenses, and Changes in Net Position (SRECNP). The updated format clarifies distinctions between operating and nonoperating classifications and introduces an important new subtotal titled “Operating income (loss) and noncapital subsidies.”

Noncapital subsidies are defined as nonoperating revenues received without providing goods or services in return, typically intended to reduce costs to students. For public universities, these often include state appropriations or non-exchange grants supporting general operations. By clearly identifying these subsidies alongside operating results, GASB aims to improve comparability with financial presentations used by private-sector or nonprofit organizations, which similarly highlight operating results before contributions.

The revised SRECNP format follows this specific sequence:

1. Operating revenues
2. Operating expenses
   • Resulting in operating income (loss)
3. Noncapital subsidies (e.g., state appropriations or operational grants)
   • Resulting in the subtotal: operating income (loss) and noncapital subsidies
4. Other nonoperating revenues and expenses (investment income, interest expense, gains/losses on disposal of capital assets, etc.)
5. Unusual or infrequent items (if any)
6. Change in net position

Items considered unusual or infrequent (previously categorized as extraordinary or special items) must now be clearly presented separately at the bottom of the statement, immediately preceding the final change in net position. GASB’s definition remains unchanged — such items must be both uncommon and infrequent t— but explicit labeling, individual disclosure and explanatory notes are required.

Additionally, GASB 103 provides explicit definitions for operating versus nonoperating activities. Nonoperating revenues and expenses include:

• Subsidies (as described above)
• Gifts to permanent endowments
• Financing-related activities (e.g., interest expenses)
• Gains or losses from capital asset disposals
• Investment income

Any activity not fitting within these specified categories is considered operating. Institutions may need to reevaluate classifications previously used. For instance, some grants previously treated as operating revenue might now qualify as nonoperating subsidies under these clarified guidelines. Ultimately, GASB’s clarification intends to foster greater consistency and comparability of financial results across institutions.

GASB 103 resolves some prior diversity in practice of higher education foundations by expressly including “investment income and expenses” within nonoperating revenues and expenses. Accordingly, institutions and foundations reporting under GASB should present interest, dividends and realized/unrealized investment gains and losses as nonoperating, below the ”operating income (loss) and noncapital subsidies” subtotal.

The only narrow exception is when investing itself constitutes the entity’s principal ongoing operations (for example, an investment trust fund or a loan program whose core activity is earning interest), in which case those inflows are operating. GASB staff reaffirmed this in responses to technical inquiries made by our firm, noting that the Board considered — and rejected — NACUBO’s proposal to allow endowment spending draws to be reported as operating revenue for foundations. Such draws may be explained in the notes but remain nonoperating on the face of the SRECNP.

Component Units

GASB 103 revises how major component units (such as legally separate foundations or research entities) are presented in financial statements. Institutions must now present each major discretely presented component unit separately within the primary university’s statements of net position and SRECNP, unless this overly complicates the presentation. Aggregating multiple significant component units into a single column or placing detailed information solely in the notes is no longer acceptable.

If a university has multiple major component units, GASB requires a separate combining statement to follow the primary financial statements, clearly detailing each unit’s financial position and results. The criteria determining a major component unit remain unchanged (based primarily on financial significance, services provided or transaction volume). Institutions should carefully evaluate their reporting entities to ensure compliance and improve transparency.

Budgetary Reporting (if applicable)

While most public higher education institutions don’t typically present annual budget-to-actual comparisons in their financial statements, GASB 103 includes guidance for those that do. The new standard removes the option to present budgetary comparisons as basic financial statements. Instead, these comparisons must now be shown as Required Supplementary Information (RSI), including:

• Original budget
• Final amended budget
• Actual results
• Variances (original vs. final and final vs. actual), with explanations for significant differences

Institutions that include budgetary comparisons should plan for these adjustments, but this requirement remains uncommon within higher education reporting.

GASB 104: New Disclosure Requirements for Capital Assets

GASB 104 focuses on improving capital asset disclosures in the notes to the financial statements. It does not change recognition or measurement of assets, but it does require more granularity in certain disclosures that are especially relevant for intangible assets. Specifically, Statement 104 mandates that four categories of capital assets be separately disclosed (itemized) in the capital asset note instead of being lumped together:

• Lease assets – Assets recorded under GASB 87, Leases, shown by major class of underlying asset (for example, leased buildings, equipment, etc.).
• Public-Private Partnership (PPP) assets – Intangible right-to-use assets recorded by an operator under GASB 94, Public-Private and Public-Public Partnerships, again disaggregated by major class of the underlying asset. (For instance, if a university has a PPP arrangement for student housing, the intangible asset for the building must be separately noted as a PPP lease asset.)
• Subscription-based IT arrangement assets – Subscription assets recognized under GASB 96, Subscription-Based Information Technology Arrangements, disclosed in aggregate or by type. These are essentially the intangible assets for cloud software subscriptions and similar IT arrangements.
• Other intangible capital assets – Any other intangible assets not covered above (e.g., software developed/purchased, patents, trademarks), broken out by major class of asset.

By requiring these distinctions, GASB 104 helps financial statement users see the composition of intangible and leased assets. This is increasingly important as many universities have significant leased facilities and cloud-IT investments. In practical terms, institutions will need to adjust their capital asset roll-forward schedules in the notes to show separate line items for “Lease Assets – Buildings,” “Lease Assets – Equipment,” “Subscription Assets,” etc., including separate accumulated depreciation/amortization for each subcategory.

Another important aspect of GASB 104 is the introduction of capital assets held for sale. The standard defines a capital asset as held for sale if (a) the government has decided to pursue selling the asset, and (b) it is probable the sale will be finalized within one year from the financial statement date. This concept is somewhat similar to assets held for sale in private-sector accounting. But under GASB 104 the asset continues to be reported in its normal category (e.g., still listed in capital assets on the Statement of Net Position) until disposed; there is no separate line item for assets held for sale.

However, new note disclosures are required for any assets that meet the held-for-sale criteria. Specifically, in the capital asset footnote, the institution must disclose the historical cost and accumulated depreciation of assets held for sale, by major class of asset. GASB also directs governments to evaluate each reporting period whether an asset meets the held-for-sale criteria. If so, you should also disclose if any debt is directly related to or collateralized by that asset. For example, if a building held for sale has outstanding debt secured by it, the carrying amount of that debt for each major class must be disclosed as well. These disclosures alert financial statement users to significant assets the university is planning to sell and any obligations attached to them.

GASB 104 shares the same effective date as 103 — fiscal years beginning after June 15, 2025 — and also requires retroactive application. This means prior periods presented will need to be conformed to the new disclosure format to allow comparability. Early adoption is permitted and encouraged by GASB.

Implementation Considerations for Universities

With the fiscal year 2026 implementation deadline approaching, higher education finance teams should be proactive. Here are the key steps to prepare for GASB 103 and 104.

Rewriting and restructuring the MD&A

Begin reorganizing your MD&A to fit the five mandated sections. Remove any content that isn’t one of the required topics, and eliminate redundant discussions. Ensure that for each significant financial change, the MD&A clearly explains why it happened (e.g., policy changes, enrollment shifts), not just the fact that numbers changed. An objective, reader-friendly analysis is the goal.

Updating statement formats and accounting systems

Modify your SRECNP report template to the new GASB 103 layout. This might involve re-mapping certain revenue or expense accounts as operating or nonoperating (for example, classifying state appropriations and certain grants as nonoperating subsidies).

Make sure your financial reporting software or spreadsheets can produce the new subtotal for operating income plus subsidies. Plan to recast the prior year SRECNP for comparative presentation, since the changes must be applied retroactively. It’s also wise to educate senior leadership and boards about these format changes so they aren’t surprised by a new look in the financial statements.

Coordinating with component units

If your university has more than one major component unit, prepare to present each separately. Determine if a combining statement of component units will be needed for clarity. Communicate early with your component units’ finance teams so they understand that when the primary university implements GASB 103, they will need to provide information in the new format as well. This collaboration will ensure consistency in reporting across the entity.

Enhancing capital asset tracking and notes

Inventory your capital assets to identify items that fall into the new disclosure categories. You may need to break out existing intangible assets into subcategories, like leases and subscription-based IT assets, in your records for note disclosure purposes.

Also, review any assets that the institution is planning to sell in the near term. For any that meet the held for sale criteria (decision made and likely to sell within a year), gather the data needed for the new disclosures (original cost, accumulated depreciation, etc., and any related debt). Update your capital asset note templates to include lines for those categories as required.

Consulting guidance and training staff

Review the official GASB statements and implementation guides for full details. It may be helpful to look at the example MD&A and financial statements provided in GASB 103’s appendices to model your own formats. Train accounting staff on the new definitions (such as what qualifies as a subsidy or an unusual item) so transactions are recorded in the proper categories going forward.

If needed, seek out higher education accounting seminars or advisors for additional clarification on tricky areas. And your higher education CPA can guide you through these changes as well.

By addressing these areas now, colleges and universities can ensure a smooth transition to GASB 103 and 104. Although implementing new standards requires effort, the result should be financial reports that are more transparent and user-friendly for governing boards, oversight agencies, and the public. In particular, university stakeholders will benefit from a more focused MD&A narrative and clearer insight into how intangible assets and one-time events affect the institution’s finances.

With thoughtful preparation, higher education institutions can turn these compliance requirements into an opportunity to improve their financial communication and demonstrate sound accountability in the years ahead.

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