GASB Implementation Guide 2025 – What to Know

SUMMARY

• The Governmental Accounting Standards Board (GASB) issued Implementation Guidance Update – 2025¹ to clarify and elaborate on existing GASB statements through new and amended guidance.
• This update includes guidance on cash flow reporting, proprietary fund items classifications, lease accounting, accounting changes/error correction reporting and compensated absences.
• The response for Question 4.16 is effective immediately. The remaining guidance is effective for fiscal years beginning after June 15, 2025, with early application encouraged if the related pronouncement has been implemented.

BACKGROUND AND AUTHORITY

On June 23, 2025, the GASB issued Implementation Guide No. 2025-1, Implementation Guidance Update – 2025. This was part of its periodic updates to clarify practice issues sent to the GASB Technical Inquiry Service, as well as address concerns sent to the Board from various stakeholders. GASB Implementation Guidance questions are considered Level B GAAP under the current GAAP (Generally Accepted Accounting Principles) structure, per GASB Statement 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, paragraph B4.² This means that while authoritative when compared to interpretive guidance from groups like the GFOA, requirements and guidance in GASB Level A GAAP statements are given higher priority.

KEY IMPLEMENTATION TOPICS

Cash Flow Reporting

Question 4.1 clarifies that if a transaction is reported as part of operating income in the statement of revenues, expenses and changes in fund net position but appears in a different cash flow category (i.e. other than operating), it must be included as a reconciling item in the reconciliation of operating income to net cash flows from operating activities.

Proprietary Fund Reporting

Questions 4.2 – 4.7 address classification of revenues and expenses in proprietary funds:

• Interest expenses are always nonoperating, even if related to operations (Q4.2).
• Interest revenue from leases is non-operating, even if leasing is the primary operation of the fund (Q4.3).
• Revenue from deferred inflows related to leases is considered operating revenue (Q4.4).
• Subsidies are classified based on restrictions imposed by the provider (Q4.5) and are otherwise reported as noncapital subsidies unless specified.
• Payments in lieu of taxes (PILOTs) may be subsidies depending on their substance (Q4.6).
• Insurance payments to healthcare providers do not meet the subsidy definition under Statement 103 (Q4.7).

Lease Accounting

• Question 4.8 clarifies that lease terms should be based on the noncancellable period, even if termination is based on usage (e.g., mileage for a vehicle lease).
• Question 4.9 states that lease liability remeasurement due to modifications of the lease agreement should be calculated from the date of the modification.

Conduit Debt Obligations

Question 4.10 explains that conduit debt characteristics must be evaluated based on the relationship between issuer and obligor, not the financial statement presentation.

Accounting Changes and Error Corrections (Statement 100)

• Question 4.11 states that capitalization threshold changes are not considered changes accounting in accounting principles.
• Question 4.12 requires aggregated display of adjustments to beginning balances on the face of the financial statements unless each adjustment is presented individually.
• Question 4.13 addresses presentation of funds changing from major to nonmajor.
• Question 4.14 addresses presentation when a major fund is absorbed into another fund because of the movement of continuing operations.

Compensated Absences (Statement 101)

Question 4.15 clarifies that known future pay rates should not be used in measuring liabilities even if they represent a different rate structure (e.g., percentage of future pay).

Statement 103 Implementation

Question 4.16 requires component units with earlier fiscal year-ends to implement Statement 103 in their own financial statements if included in the primary government’s reporting.

Other Guidance

• Question 5.1 amends the guidance in previously issued implementation guidance regarding title to an asset and ownership.
• Question 5.2 amends the guidance from GASB Statement 54 as to whether special revenue funds are required to report restricted or committed revenue sources.

EFFECTIVE DATES

Most provisions are effective for fiscal years beginning after June 15, 2025. One question (Q4.16) is effective upon issuance. Retroactive application is required for most questions unless otherwise specified (Q4.11 – 4.14).

KEY CONSIDERATIONS

While GASB Implementation Guidance updates may not demand the same level of effort as full GASB Statements, they still warrant careful consideration. Management staff should assess the relevance of each update to their financial reporting, including how the guidance aligns with their financial statement presentation and supporting documentation. Staying current ensures compliance and helps maintain the integrity and accuracy of financial reporting in an evolving regulatory environment.

Contact Sikich today with any questions.

1. Implementation Guidance Update – 2025, GASB. https://gasb.org/projects/recently-completed-projects/implementation-guidance-update-2025-418685
2. Statement 76, Governmental Accounting Standard Series, GASB. https://www.gasb.org/page/ShowPdf?path=gasbs76_final_cropped.pdf&title=GASB%20STATEMENT%20NO.%2076,%20THE%20HIERARCHY%20OF%20GENERALLY%20ACCEPTED%20ACCOUNTING%20PRINCIPLES%20FOR%20STATE%20AND%20LOCAL%20GOVERNMENTS