GASB Statement No. 102, Certain Risk Disclosures

The Governmental Accounting Standards Board (GASB) has issued Statement No. 102, Certain Risk Disclosures.   

Stakeholders have expressed concerns about how natural disasters, fluctuating economy, and other types of risks affect governments, but the COVID-19 pandemic amplified these concerns. In 2020, GASB added a project on risk disclosures. Ultimately, the GASB Statement No. 102, Certain Risk Disclosures (Statement) was issued in December 2023 and is effective for fiscal years beginning after June 15, 2024.   

Understanding GASB 102 

The objective of this Statement is to provide users of governmental financial statements with useful information about risks and vulnerabilities pertaining to concentrations and constraints that are not required by other GASB statements. This Statement requires governments to assess known concentrations and constraints combined with events that give rise to an increased risk of substantial impact and vulnerability, and provides criteria for assessment disclosure.     

The Statement does not specifically define the term risk, likely because it was previously defined in GASB Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues. Statement 10 defines risk variously as uncertainty of loss, chance of loss, or the variance of actual from expected results. However, the concept of risk for Statement 102 pertains to the possibility of loss or harm and is forward looking. As such, the intent of this statement is not to address substantial impacts that have already been experienced by the government, but rather substantial impacts that may occur in the future as a result of events that have occurred or are more likely than not to occur in the future.   

Key Risk and Uncertainties Outlined in GASB 102 

The Board considered the applicability to the governmental environment elements of FASB Accounting Standards Topic 275, Risk and Uncertainties. The sources of risk addressed in the FASB relating to non-governmental entities and the Board’s disposition are as follows: 

Nature of operations 

The Board concluded that risks resulting from “nature of operations” for governmental entities would result in boilerplate disclosures. However, the environment in which the government operates could expose the government to risks that limit spending or the ability to acquire resources. Hence, the Board concluded that Statement 102 should address disclosures pertaining to certain “constraints”.   

Use of estimates in the preparation of financial statements  

The Board concluded that disclosures pertaining to risks from the general use of estimates would result in information that general and educational in nature and not specific to the government and is not an objective of this Statement 102.  

Significant concentrations in certain aspects of an entity’s operations  

The Board concluded that governments are also exposed to risk from certain concentrations, some of which are similar to those of non-government entities. That information about these vulnerabilities is essential in assessing a government’s financial condition.   

The Board considered the costs associated with accumulating, assessing, and disclosing vulnerabilities pertaining to concentration and constraints. However, the Board believes that concentration and constraints within the scope of this GASB Statement are generally known to a government’s management.   

GASB 102: The Disclosure Criteria 

The Board considered the possibility that the usefulness of information about risk disclosures could be diminished if presented too early (disclosures of risks that never come to fruition) or too late (failing to disclose a warning sign before a loss or harm has occurred). With that in mind, Statement 102 establishes the criteria for governments to disclose a concentration or constraint in the notes to the financial statements. The disclosure criteria are as follows:  

• A concentration or constraint is known before the financial statements' issuance
• The concentration or constraint makes the reporting unit vulnerable to a substantial impact
• An event or events associated with the concentration or constraint that could cause a substantial impact to 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 (more likely than not means a likelihood of more than 50 percent) (see illustration below). 

Concentration is a lack of diversity related to an aspect of a significant inflow of resources or outflow of resources. Examples include, but are not limited to: 

• Employers (i.e., major plant rural area) 
• Industries (i.e., tourism or farming) 
• Inflows of resources (i.e., limited sources of revenue) 
• Workforce covered by collective bargaining agreements (i.e., union) 
• Providers of financial resources (i.e., limited financing sources) 
• Supplier of material, labor, or services (i.e., public utility with single source) 

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. Examples include, but are not limited to the following: 

• Limitations on raising revenue (i.e., cap on taxes or fees) 
• Limitations on spending (i.e., external approval for exceeding budget) 
• Limitations on the incurrence of debt  
• Mandated spending (i.e., asset retirement obligations)  

Disclosure Criteria Illustration 

In Appendix C of the Statement, Illustration 4 provides an example of an Example County that is economically dependent on a military base, which is in the county. This base has a significant impact, either directly or indirectly, on tax revenues. The US government formed a committee to recommend to the US Congress military bases for consideration of closure. The Committee placed this base on an initial list for consideration for closure. The Committee would then go through a lengthy assessment process and recommend a final list to Congress for base closures.   

In this illustration, the County determined that this military base represented a concentration and that concentration makes the County vulnerable to a substantial impact. So, the first two criteria were met. However, the County determined that merely having the base on the Committee’s initial list did not constitute an event associated with the concentration that could cause a substantial impact. The County considered the determination of the final list to be presented to Congress the triggering event associated with a concentration that could cause a substantial impact. Further, having this base on the initial base did not cause the County to believe that it was more likely than not that the base would be on the final list provided to Congress and recommended for closure. Since all three criteria for disclosure were not met, no disclosure was made in Example County’s financial statements in the first year.   

As this example extends into the second year, the County monitored the public hearings of the Committee and learned of more imminent plans to close the base. As a result, as of the issuance date of year two, the County considered it more likely than not that the County would be included in the final list provided to Congress, and all the criteria for disclosure would be met.   

Disclosure Requirements 

Disclosure requirements provide information in sufficient detail to enable users to understand the nature of the circumstances and the government’s vulnerability to the risk of a substantial impact: 

• The concentration or constraint 
• Each event associated with a concentration or constraint that could cause a substantial impact if the event had occurred or had begun to occur prior to the issuance of the financial statements 
• Actions taken by the government prior to the issuance of the financial statements to mitigate the risk 

If mitigating actions take place prior to the issuance date, and the mitigation causes the disclosure criteria not to be met, then none of the disclosure requirements are required.   

EisnerAmper can help you navigate the decision of identifying risks and disclosure requirements.