GASB 102, Certain Risk Disclosures: A New Standard

GASB 102, Certain Risk Disclosures, provides information about concentrations and constraints that expose the government to financial risks. Such disclosures can help citizens, government personnel, elected officials, and outside stakeholders, such as lenders, understand these risks.

Below, I provide a brief overview of the new standard applicable to years ending June 30, 2025 and after.

Purpose and Scope

First, let me tell you about the purpose and scope of the new standard. GASB Statement No. 102 aims to enhance financial reporting by requiring state and local governments to disclose risks stemming from certain concentrations and constraints that may make them vulnerable to substantial financial impacts. The goal is to ensure that users of financial statements receive essential information about risks that are not otherwise routinely disclosed.

Next, let’s look at the definitions of concentration and constraint.

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GASB 102 Key Definitions

Concentration

A concentration is defined as a lack of diversity in a significant inflow or outflow of resources. Examples include:

• Dependence on a single employer or industry
• Limited suppliers of goods or services

Constraint

A constraint is a limitation imposed by an external party or a formal action of the government’s highest level of decision-making authority. Examples include:

• Spending mandates
• Revenue or debt limitations

Next up is the disclosure criteria.

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GASB 102 Disclosure Criteria

Governments must disclose concentrations or constraints if all of the following conditions are met:

1. Known Condition: The concentration or constraint is known before the financial statements are issued.
2. Vulnerability: It makes the reporting unit vulnerable to a substantial impact.
3. Triggering Event: An associated event has occurred, begun to occur, or is more likely than not to begin within 12 months of the financial statement issuance date.

Mitigating actions taken before issuance may eliminate the need for disclosure.

Now, let’s see what the required disclosures are.

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GASB 102 Required Disclosures

If the criteria are met, governments must disclose:

• A description of the concentration or constraint.
• A description of the triggering event(s), those associated with the concentration or constraint that could cause a substantial impact if it occurred (or had begun to occur) before the issuance of the financial statements.
• Actions taken to mitigate the risk prior to the issuance of the financial statements.

Disclosures should be detailed enough to help users understand the government’s vulnerability to substantial financial impacts. For comparative statements, disclose the information for the current period only.

So, to which governments does this standard apply?

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Applicability

Applies to:

• All state and local governments, including general purpose governments, public authorities, utilities, and public employee retirement systems.
• Reporting units that account for revenue debt (a specific revenue stream is pledged).

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Expected Benefits

• Enhances transparency about vulnerabilities not otherwise disclosed.
• Promotes comparability, reliability, and consistency in financial reporting.
• Helps stakeholders anticipate risks to financial health.

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Cost-Benefit Consideration

• The GASB believes the costs are limited since most governments already know their own risk exposures.
• The benefits—providing essential and timely information—outweigh these costs.

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Illustrative Examples (Appendix C)

Appendix C of the Statement includes sample disclosures, such as:

• An airport fund reliant on a single airline that discontinues service.
• A workforce fully covered by a union agreement under negotiation.
• A wastewater authority facing mandated environmental upgrades.
• A county dependent on a military base scheduled for closure.

These examples illustrate the application of disclosure principles and the required content.

Effective Date

• Effective for fiscal years beginning after June 15, 2024, and all reporting periods after that.
• Early application is encouraged.