Enhanced Risk Disclosures: A Closer Look at GASB Statement No. 102

Enhanced Risk Disclosures: A Closer Look at GASB Statement No. 102

February 23, 2024

The Governmental Accounting Standards Board (GASB) has issued Statement No. 102, which focuses on enhancing transparency around the financial risks state, local, and Tribal governments face, particularly those related to resource concentrations and external or internal constraints. This article aims to shed light on what this means for government financial reporting, including what’s new, effective dates, and the expected benefits.

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What is GASB Statement No. 102?

GASB Statement No. 102, titled “Certain Risk Disclosures,” requires entities to disclose critical information about their exposure to risks due to certain concentrations or limitations that could lead to financial distress or operational challenges. Essentially, state, local, and Tribal governments must now provide more detailed notes in their financial statements concerning vulnerabilities due to a lack of diversity in significant inflows and outflows of resources or constraints imposed either externally or by the government itself.

A Closer Look at Concentrations and Constraints

  • Concentration: Defined as a lack of diversity concerning a significant inflow or outflow of resources. These could be due to over-reliance on a single employer, industry, or revenue source.
  • Constraint: Refers to limitations placed on a government by external parties or by formal action of the government’s highest level of decision-making authority, limiting the ability to raise resources or control spending.

Disclosure Requirements

Governments must now assess and disclose if these concentrations or constraints subject them to significant risks within the next year. Should criteria for disclosure be met, detailed notes must be provided in financial statements, including:

  • The nature of the concentration or constraint.
  • Events that could trigger significant impacts.
  • Actions taken to mitigate risks.

Effective Date and Transition

The new standard is effective for fiscal years beginning after June 15, 2024. Entities are encouraged to adopt the standard earlier if prepared.

The Benefits of Improved Financial Reporting

The primary advantage of GASB 102 is that it aims to offer users of financial statements better information to understand and anticipate risks to government financial health. By requiring disclosures of concentrations and constraints, stakeholders can make more informed evaluations of financial condition and potential future challenges. The comprehensive nature of these disclosures ensures that financial statement users are aware of the range of risks that might affect a government entity’s ability to continue providing services or to meet obligations—key insights for decision-makers like elected officials, financial analysts, and taxpayers.

In conclusion, GASB Statement No. 102 represents a step forward in promoting greater transparency and accountability within governmental financial reporting. By providing a window into potential risks, it helps users perform more nuanced analyses of governments’ financial stability. It’s an essential advancement for CPAs and financial professionals serving governments who are tasked with preparing these crucial disclosures.

Please reach out with any questions. Or, for complete information on GASB Statement No. 102, visit the official GASB website.

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