GASB guidance expands risk-related reporting requirements

GASB has issued guidance that requires governments to disclose information about risks related to certain concentrations and constraints.

GASB Statement No. 102, Certain Risk Disclosures, defines a concentration as “a lack of diversity related to an aspect of a significant inflow of resources or outflow of resources.” It defines a constraint as “a limitation that is imposed by an external party or by formal action of a government’s highest level of decision-making authority.”

Examples of a concentration, according to a news release, include when a small number of companies represent a majority of employment in a government’s jurisdiction or when a government relies on one source for most of its revenue. Examples of constraints include a voter-approved property tax cap or a state-imposed debt limit.

According to the news release, the new statement is “meant to provide financial statement users with information about certain risks when circumstances make a government vulnerable to a heightened possibility of loss or harm.”

Effective for fiscal years beginning after June 15, 2024, government entities are required to disclose information about a concentration or constraint if:

• It is known to the government prior to issuing the financial statements;
• It 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 a substantial impact 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.

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.