Overall GASB believes that government officials are already aware of significant concentrations and constraints, as they are a fundamental aspect of its general financial risk profile. In order to prepare, determine the concentrations and constraints affecting your district and analyze against the relevant criteria. If disclosure is required, discuss with your auditor and any financial statement preparers.
Everyone can appreciate a new GASB Statement, but most of us probably have a soft spot for those Statements that don’t require substantial additional work. The GASB Statement No. 102 – Certain Risk Disclosures, issued in December 2023, should be one of the simpler standards to implement in recent years. In fact, GASB identified the Statement 102 to have a small potential level of effort for implementation.
Objective
The purpose of the Statement is to inform users of financial statements about risks associated with specific concentrations or constraints that the user might assess as making the government subject to certain vulnerabilities to loss. Concentrations and constraints may limit a government’s ability to acquire resources or control spending.
Background
The COVID-19 pandemic has increased stakeholder concerns about the risks government agencies face in terms of their capacity to obtain resources or control spending. In considering the costs and benefits of implementation, the GASB came to the conclusion that the government is generally aware of the concentrations and constraints, and that obtaining the data required for disclosure and presentation would not be unduly difficult or expensive. The Statement will provide users with essential information about risks that is understandable, reliable, relevant, timely, consistent, and comparable.
Effective Date
GASB Statement No. 102 requirements are effective for fiscal years beginning after June 15, 2024, and all reporting periods thereafter. Earlier application is encouraged.
Definitions
- Concentration – a lack of diversity related to an aspect of a significant inflow of resources or outflow of resources
- Constraint – a limitation imposed on a government by an external party or by formal action of the government’s highest level of decision-making authority
- Risks – conditions that give risk to the potential for loss or harm
- Substantial – denotes a degree of magnitude greater than significant; subject to professional judgment
Criteria
The Statement requires a government to disclose information about a concentration or constraint if ALL of the following criteria are met:
- The concentration or constraint is known to the government prior to the issuance of the financial statements.
- The concentration or constraint makes the government vulnerable to the risk of a substantial impact.
- An event or events associated with the concentration or constraint that could cause a substantial impact to have occurred, have begun to occur, or are more likely than not to begin to occur within 12 months of the date the financial statements are issued.
Examples
- Concentrations
- Employers
- Industries
- Inflows of resources
- Workforce covered by collective bargaining agreements
- Providers of financial resources
- Suppliers of material, labor or services
- Constraints
- Limitations on raising revenue, such as a cap on the allowed increase of tax rates.
- Limitations on spending, such as a budget that can’t be exceeded without external approval.
- Limitations on the incurrence of debt, such as a debt ceiling.
- Mandated spending, such as imposed federal standards requiring spending to comply.
Disclosure
The disclosure should include descriptions of the following:
- 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 the issuance of the financial statements.
- Actions taken by the government prior to the issuance of the financial statements to mitigate the risk.
GASB 102 does not require disclosure solely because a concentration exists, but only if all of the criteria are met. If mitigating actions are taken by the government prior to the issuance of the financial statements, causing a criterion to no longer be met, then no disclosure is required.
Conclusion
Overall GASB believes that government officials are already aware of significant concentrations and constraints, as they are a fundamental aspect of its general financial risk profile. In order to prepare, determine the concentrations and constraints affecting your district and analyze against the relevant criteria. If disclosure is required, discuss with your auditor and any financial statement preparers.
