Government Regulatory Update

Jennifer L. CruverKibi, CPA

The Governmental Accounting Standards Board (GASB) has issued Statement No. 102, Certain Risk Disclosures. GASB 102 will be effective for fiscal years beginning after June 15, 2024, and all reporting periods thereafter.

What is the objective of GASB 102?

The objective of GASB 102 is to provide users of government financial statements with essential information about risks related to a state or local government’s vulnerabilities due to the variety of risks they face. These are risks that could negatively affect the level of service they are able to offer or their ability to meet obligations as they come due. Although governments have been required to disclose information about their exposure to some of those risks, key information regarding common risks among state and local governments has not been routinely disclosed because there hasn’t been an explicit requirement to do so.

What are the key aspects of GASB 102?

GASB 102’s end goal is to provide users of financial statements with essential information regarding risks related to a government’s vulnerabilities due to certain concentrations or constraints.

A concentration is defined as a lack of diversity related to an aspect of a significant inflow of resources or outflow of resources. Examples of a concentration included in the guidance (but not limited to) are: employers, industries, inflows of resources, workforce covered by collective bargaining agreements, providers of financial resources, and suppliers of material, labor, or services.

A constraint is defined as a limitation imposed on a government by an external party or by formal action of the government’s highest level of decision-making authority.  Examples of constraints included in the guidance (but not limited to) are: limitations on raising revenue, limitations on spending, limitations on the incurrence of debt, and mandated spending.

Concentrations and constraints may impact a government’s capacity to obtain resources or control spending.

What is now required of local governments?

Governments must assess whether a concentration or constraint meet ALL the following criteria for footnote disclosure:

  • The concentration or constraint is known to the government prior to financial statements issuance,
  • The concentration or constraint makes the government vulnerable to the risk of a substantial impact, and
  • An event or events associated with the concentration or constraint that could cause the substantial impact either has occurred or is more likely than not to begin to occur within twelve months of financial statement issuance.

If all three criteria listed above are met, the government must disclose the following information:

  • The concentration or constraint
  • Each event associated with the concentration or constraint that could cause a substantial impact if the event had occurred or had begun to occur prior to financial statement issuance.
  • Actions taken by the government prior to financial statement issuance to mitigate the risk.

What should your government do to prepare for GASB 102?

Assess whether there are any potential concentrations or constraints within your government. For each concentration or constraint, assess whether it makes your government vulnerable to a risk of a substantial impact. Then evaluate whether a triggering event is taking place that will necessitate footnote disclosure. Concentration examples could be a substantial employer in your municipality is closing and this event will have a substantial negative impact on future revenue; a large source of revenue relied upon for operations will no longer be available in the future; or there will be a substantial decline in a specific revenue source that is a sole source of bond repayment. Examples of constraints could be the state-imposed debt limit or a voter-approved property tax cap.

If you have any questions regarding GASB 102 please contact us.