Blog: Effective Now – GASB Statement No. 102

State and local governments are exposed to a variety of risks related to certain concentrations, constraints, or events that could impact or even negatively affect operations.  Previously, exposure to some of these risks has been required to be disclosed, but other risks have not been routinely disclosed because of the lack of a clear requirement. 

In December 2023, the Government Accounting Standards Board (“GASB”) issued Statement No. 102, Certain Risk Disclosures (“GASB 102 or the “Statement”).  While GASB 102 does not explicitly define risks or lay out specific requirements, the Statement provides guidelines and criteria for assessing whether a concentration or constraint disclosure is warranted.  GASB Statement No. 102 is applicable for periods beginning after June 15, 2024, and earlier adoption was encouraged. 

The scope and applicability of GASB 102 is limited to risks related to certain concentrations and constraints, as defined.  The Statement defines a concentration as a lack of diversity related to an aspect of a significant inflow of resources or outflows of resources.  This could include employers, industries, inflows of resources, workforces under collective bargaining agreements, providers of financial resources, and/or suppliers.  A constraint is a limitation that is imposed by an external party or by a formal action of a government’s highest level of decision-making authority.  This could include limitations on raising revenue, spending, or incurrence of debt, or mandated spending. 

Governments should disclose a concentration or constraint that meets the definition above if it is (a) known to the government prior to the issuance of the financial statements, (b) the concentration or constraint makes the reporting unit vulnerable to a risk of a substantial impact, and (c) an event or events associated with the concentration or constraint that could cause a substantial impact has occurred, begun to occur, or more likely than not to occur within 12 months of the date the financial statements are issued.  If the government takes action to mitigate any of the concentration or constraint risks prior to the issuance of the financial statements and any of the disclosure criteria is no longer met, then disclosure is no longer necessary.

For each concentration or constraint meeting the applicable criteria, governments should include in the notes to the financial statements descriptions of the following: (a) concentration or constraint, (b) each associated event that could cause a substantial impact if the event had occurred or had begun to occur prior to the issuance of the financial statements, and (c) actions taken by the government prior to issuance of the financial statements to mitigate the risk. The disclosures should include sufficient detail to allow users to understand the nature of the circumstances and the government’s vulnerability to the risk arising from the concentration or constraint. 

Note that for governments presenting comparative financial statements, the reporting requirements apply only to financial statements of the current period.  Also, to the extent other note disclosures within the financial statements address items required to be disclosed under the Statement, efforts should be taken to supplement or combine with the note disclosures as to avoid unnecessary duplication.  Lastly, information should be disclosed at the reporting unit level.  Any risks involving multiple reporting units should be combined in a matter that avoids duplication.  

The GASB believes that management and government officials should already be aware of any significant concentrations or constraints and the goal of GASB 102 is not to make officials aware of these, but to give management a criteria for when and how to disclose within the financial statements.  For example, one major concentration surrounding charter schools is revenue sourced from local school districts.  At times, this may account for 60%-80% of a charter school’s total revenue.  Management is well aware of this fact, however, GASB 102 offers criteria and guidance as to how a government should disclose this information within the financial statements. 

While the new GASB Statement No. 102 does not affect recording from an accounting standpoint, it most likely will affect the volume of disclosures within the financial statements.  While management is aware of the risks surrounding concentrations or constraints affecting governments, questions may arise as to how and when to disclose these within the financial statements.   At HFCO, we have a team of professionals specializing in audits of governmental nonprofit organizations, including charter schools, audits under Government Auditing Standards, commonly known as Yellow Book, and Single Audits, both as part of a Yellow Book engagements and program specific audits, that can help your organization understand and meet your financial statement reporting requirements. 

Reach out to our nonprofit audit department contact, Cristopher Sefransky, CPA, CFE, LSSGB, Audit and Assurance manager, with any questions.

About the Author: Cristopher Sefransky has over seventeen years of diverse public accounting experience with national and regional CPA firms rendering accounting and assurance, consulting, and tax services to clientele. Industry exposure includes private and public for-profit entities and nonprofit entities in industries including charter schools, private schools, HUD entities, manufacturing and distribution, and various service industries.