What Is GASB 34? Reporting Layers and GASB 103 Changes

GASB Statement No. 34 is the accounting standard, issued by the Governmental Accounting Standards Board in June 1999, that requires state and local governments to prepare entity-wide financial statements on a full accrual basis in addition to their traditional fund-level statements. It reshaped governmental financial reporting by adding a long-term, economic view of a government’s finances to the short-term, budget-focused view that had been standard practice. Anyone reading a city, county, or state audit report today is looking at a document whose structure comes from GASB 34, though portions of that structure are being updated by GASB Statement No. 103 for fiscal years beginning after June 15, 2025.¹

The Problem GASB 34 Was Written To Solve

Before 1999, a city could own billions of dollars in roads, bridges, and water systems and show none of them on its financial statements. Governments reported only what came in and went out during the current budget period. That approach answered whether officials had stayed within their appropriations, but it told citizens and creditors almost nothing about the government’s overall financial health.

GASB 34 kept the traditional fund reporting that legislators and budget officers needed and added a second layer of statements that captures the full economic picture, including capital assets and long-term debt. The result looks much closer to private-sector financial reporting than what governments produced before.

Two Layers, Two Measurement Approaches

Governmental accounting has to answer two very different questions at once. Did the government spend money according to legal restrictions this year? And did its overall financial position improve or deteriorate over the long term? GASB 34 answers both by using different accounting rules for each layer of the report.

Government-Wide Statements Use Full Accrual

The government-wide statements use the economic resources measurement focus with the full accrual basis. Revenues are recognized when earned and expenses when the obligation occurs, regardless of when cash moves. All assets and liabilities appear on the statements, including capital assets and long-term bond debt. Depreciation on buildings, vehicles, and infrastructure flows through as expense. This layer reports the full economic cost of providing government services.²

Governmental Funds Still Use Modified Accrual

The traditional fund statements use the current financial resources measurement focus with the modified accrual basis. Revenues are recognized only when both measurable and available to pay current obligations. Long-term assets and long-term liabilities stay off these statements. The focus is narrow on purpose: it answers whether the government had enough resources this period to cover this period’s spending, which is what budget oversight requires.² Proprietary funds and fiduciary funds use full accrual at the fund level, because those activities either operate like businesses or hold assets on behalf of others.

What a GASB 34 Financial Report Contains

The complete report consists of Management’s Discussion and Analysis, the Basic Financial Statements, and Required Supplementary Information. The Basic Financial Statements themselves break into three parts: government-wide statements, fund statements, and the notes.²

Management’s Discussion and Analysis

The MD&A is a narrative that appears before the financial statements and gives readers an accessible overview of the year. It must cover the relationships between the statements, an analysis of the government’s overall financial position, significant changes from the prior year, balances and transactions for major funds, a summary of capital asset and long-term debt activity, and any currently known facts expected to affect future finances. Technically it is classified as Required Supplementary Information, but its position at the front of the report gives it more prominence than other RSI.²

Government-Wide Statements

Two statements make up this layer. The Statement of Net Position functions like a balance sheet: total assets, deferred outflows, total liabilities, deferred inflows, with the difference reported as net position in three categories (net investment in capital assets, restricted, and unrestricted). The Statement of Activities reports the net cost of each government function by offsetting program expenses against the revenues that program generated directly, such as fees and program-specific grants. What remains is the amount that had to be covered by general revenues like property taxes, so readers can see which programs support themselves and which lean on tax dollars.²

Both statements split activities into two columns. Governmental activities cover services funded mostly by taxes and grants, like police, fire, and parks. Business-type activities cover operations that charge fees to cover their costs, like water utilities and parking garages.

Fund Statements

Fund reporting survived largely intact. Governmental funds like the General Fund, special revenue funds, and debt service funds continue to be reported on modified accrual. GASB 34 does require each “major” fund to be presented separately rather than lumped with others, with remaining funds aggregated into a single “other” column. Major status is defined by percentage thresholds relative to total governmental or enterprise fund totals.

The Notes

The notes are a full component of the basic statements, not a supplement. They cover significant accounting policies, capital asset and long-term debt details, pension obligations, and explanations of items that reconcile the fund statements to the government-wide statements.²

Reconciliation Between the Two Layers

Because the fund statements and the government-wide statements use different measurement approaches, their numbers will not match. GASB 34 requires a reconciliation that explains every difference between the governmental fund totals and the governmental activities column government-wide. The biggest reconciling items are capital assets and long-term debt, which appear at the government-wide level but not in the fund statements. The reconciliation can sit on the face of the fund statements, in a separate schedule, or in the notes.

Budgetary Comparisons

Governments must present budgetary comparison schedules for the general fund and each major special revenue fund with a legally adopted budget. These schedules show original budget, final amended budget, and actual results.

Infrastructure Reporting

One of GASB 34’s most consequential requirements is capitalizing major general infrastructure assets. Infrastructure covers long-lived stationary assets such as roads, bridges, tunnels, water and sewer systems, dams, and drainage systems. Before the standard, most governments expensed these assets when they were built, so a city could carry $500 million in roads and show zero on its balance sheet. Under GASB 34, these assets go on the Statement of Net Position at historical cost, and governments can choose one of two methods to report the cost of using them over time.

Depreciation Approach

The default method mirrors private-sector depreciation. The asset is recorded at cost, given an estimated useful life, and depreciated each year through the Statement of Activities. Accumulated depreciation reduces the carrying value on the Statement of Net Position. It is simple, but it can produce misleading results for assets like roads that are continuously maintained rather than allowed to wear out.

Modified Approach

The alternative is available for infrastructure assets that are part of a network or subsystem. The government skips depreciation. Instead, all spending to preserve the assets at a target condition level is expensed as incurred, and only spending that adds capacity or efficiency is capitalized. The trade-off is documentation. The government must maintain an asset management system, inventory the assets, assess their condition, estimate the annual cost of maintaining the disclosed condition level, and demonstrate through at least three condition assessments that the assets are being preserved at or above that level. Two supporting schedules must appear in the Required Supplementary Information.²

What GASB 103 Changes Starting in 2026

GASB Statement No. 103 takes effect for fiscal years beginning after June 15, 2025. For governments with a June 30 year-end, the first reports under GASB 103 cover the year ending June 30, 2026. Early implementation is permitted.¹

GASB 103 does not scrap GASB 34’s dual-layer model. Government-wide and fund statements both remain, and governmental funds still use the current financial resources measurement focus and modified accrual basis. The Board considered changing that measurement focus and decided against it, concluding that the proposed changes would not achieve the intended conceptual consistency and that costs would outweigh benefits.³ The modified approach for infrastructure also survives.

The targeted changes fall in three main areas. First, GASB 103 defines operating and nonoperating revenues and expenses for proprietary funds, definitions that GASB 34 had left to professional judgment. Nonoperating now specifically means subsidies received and provided, contributions to endowments, financing-related revenues and expenses, proceeds from disposing of capital assets or inventory, and investment income and expenses; everything else is operating.³

Second, the MD&A is restructured into five required sections: an overview of the statements, a financial summary, detailed analyses of why results changed, a discussion of significant capital asset and long-term financing activity, and a section on known facts affecting future results. Boilerplate is explicitly prohibited, and duplicating content across the sections is discouraged.

Third, budgetary comparison information must now be presented as Required Supplementary Information. GASB 34 had let governments choose between presenting it as a basic financial statement or as RSI, and that choice is gone. The schedules must show variances between original and final budgets and between final budget and actual, with explanations of significant variances in notes to the RSI.³ GASB 103 also requires each major discretely presented component unit to appear separately in the reporting entity’s Statement of Net Position and Statement of Activities, rather than being disclosed only in the notes.

For a finance team preparing the first GASB 103 report, the practical work sits in the restructured MD&A, the proprietary fund presentation, and the budgetary comparison placement. The underlying recognition rules for governmental funds are the same rules GASB 34 established.

1
GASB. Summary – Statement No. 103
2
GASB. Summary – Statement No. 34
3
GASB. Statement No. 103 of the Governmental Accounting Standards Board