State and local governments face a wide array of risks that may impact the way they operate or their ability to meet obligations. In response to these risks, the Governmental Accounting Standards Board issued Statement No. 102 (GASB 102). The statement provides more transparency and timely information to the users of governmental financial statements about risks resulting from “concentrations” and “constraints,” which can make a government vulnerable to a substantial impact.
Who are users of governmental financial statements?
Financial statements help stakeholders understand whether governments have responsibly managed the funds entrusted to them. Stakeholders can be analysts from rating agencies, taxpayers, good government groups, elected officials, research organizations, professional organizations, and others.
What qualifies as a “concentration” or “constraint?”
GASB 102 defines a concentration as a lack of diversity in resource inflows and outflows. Concentrations, which limit governments’ ability to control spending or acquire resources, could be industries, such as tourism, that provide a significant portion of the government’s resources; a workforce covered by a collective bargaining agreement; suppliers of materials, labor, or services; large employers; and other sources.
The statement defines a constraint as a limitation that is imposed by an external party, such as voters, or by the government’s decision-making authority. Constraints may include limitations on raising revenue, such as a cap on property tax; limitations on spending (e.g., debt covenants); limitations on the incurrence of debt (e.g., debt limit); and mandated spending.
GASB 102 notes these examples are not a full comprehensive list of concentrations or constraints. The statement also recognizes this new disclosure requires professional judgment, and governmental entities need to evaluate whether other aspects of their operations qualify as a concentration or constraint and trigger a disclosure requirement.
What triggers a disclosure requirement?
Per GASB 102, governmental entities should provide users of financial statements with more clarification and understanding of the following:
- Concentrations or constraints
- Events associated with the concentration or constraint that could cause a substantial impact if the event had occurred, had begun to occur prior to the issuance of the financial statements, or will likely occur within 12 months
- Actions taken by the government prior to the issuance of the financial statements to mitigate the risk
When is GASB 102 effective?
The statement is effective for all governmental entities for fiscal years beginning after June 15, 2024.
PYA Can Help
GASB 102 ensures further clarity related to a government’s vulnerabilities caused by concentrations and constraints. PYA is committed to helping governments understand their requirements in abiding by GASB 102, and our experts help professional organizations, major employers, suppliers, and other companies assess and manage their roles in governmental operations. Learn more about PYA’s Tax and Compliance services and Audit and Assurance services.
Contributing Author: Kate Hounshell
