Understanding the Impact of GASB Statement No. 102, Certain Risk Disclosures

Governmental Accounting Standards Board Statement No. 102, Certain Risk Disclosures, was adopted to enhance the required risk disclosures of state and local governments by providing information to the users of government financial statements about certain concentrations and constraints.

GASB 102 applies to the financial statements of all state and local governments and is effective for fiscal years beginning after June 15, 2024, and reporting periods thereafter.

Certain concentrations or restraints may limit a government’s ability to acquire resources or control spending.

The standard defines a concentration as a lack of diversity related to a significant inflow or outflow of resources. Examples of concentrations include workforces covered by collective bargaining agreements and suppliers of material, labor, or services.

A constraint is a “limitation that is imposed by an external party or by formal action of the government’s highest level of decision-making authority.” Examples of constraints include limitations on raising revenue, spending, incurring debt, and mandated spending.

In its basis for conclusions, the GASB noted that a constraint imposed by formal action of the government’s governing body can expose the entity to risk comparable to one imposed by a third party, though it acknowledged that internal constraints may not be as difficult to mitigate.

Disclosure is required if all the following criteria are met:

If mitigating actions taken by the government before the issuance date cause any of the three criteria to not be met, disclosure is not required.

If the criteria have been met and no mitigating actions have been taken, the following disclosures are required:

The assessment related to concentrations and constraints disclosures should be made for the primary government. If a government has an individual reporting unit or fund that reports a liability for revenue debt, the government also needs to assess the disclosure criteria for that specific reporting unit.

This phrase conveys a degree of risk that is more than only the existence of a concentration or constraint. In Basis for Conclusions paragraph B22, the board provides an example of a state’s legal debt limit for general obligations bonds as a constraint.

While this constraint applies to all governments to a certain extent, only those whose general obligation bond outstanding is approaching its legal debt limit might make that government vulnerable to the risk of a substantial impact.

The Exposure Draft included a proposal that required governments to identify events that will cause a substantial impact, but the board modified the disclosure criteria in the final statement to require governments to identify events that could cause a substantial impact. The board concluded the term “could” was more suitable because it conveys less certainty than “will.”

In paragraph B24 of the Basis for Conclusions, the board also notes that in the debt limitation scenario described above, the disclosure requirement would likely be triggered if coupled with an event or events that may require additional borrowing.

The statement limits disclosure to only describe mitigating actions that had occurred prior to the issuance of the financial statements. Planned mitigations may not be included in the footnote. Note that if mitigation actions caused any of the disclosure criteria to no longer be met, none of the disclosures are required.

The requirements of this statement are effective for fiscal years beginning after June 15, 2024, and are applicable for the June 30, 2025, reporting year.

As noted in the statement’s basis for conclusions, the GASB maintained a narrow scope when developing the standard. The standard may not result in a footnote requirement in a particular year. There is a requirement for ongoing assessment of constraints and concentrations that should be monitored for potential future disclosure.

The information required to be disclosed by the statement should relate to circumstances in effect as of the date the financial statements are issued, therefore, governments should not repeat prior-year disclosures. They should apply the disclosure criteria to circumstances in effect as of the date the current year statements are issued, even when presenting comparative financial statements.

As your government begins to assess relevant constraints and concentrations, we note the following constraint and concentration examples are included in Appendix C of the statement, and encourage you to read through the examples and analysis as you begin your own assessment:

The initial analysis of information necessary to implement the standard will require an assessment and documentation of current constraints and concentrations within the government. For each constraint or concentration identified, an estimate of magnitude should be made to determine whether the government might be vulnerable to a substantial impact if a triggering event should occur.

The assessment should be performed at regular intervals to determine the risk’s status or whether a triggering event might have or is expected to occur.

If you have questions about GASB Statement No. 102, Certain Risk Disclosures or governmental accounting, contact us. We’re here to help.