Local governments face financial risks every day, from overreliance on a single industry to unexpected natural disasters. These risks, often hidden in plain sight, have long lacked formal disclosure requirements—until now. GASB 102: Certain Risk Disclosures is the latest initiative from the Governmental Accounting Standards Board (GASB) to bring transparency to these vulnerabilities.
What is GASB 102 About?
GASB 102 focuses on two key areas: concentrations and constraints.
- Concentrations occur when a government relies heavily on a single revenue source, vendor, or activity. For example, a city dependent on one tech company for property taxes faces significant financial risk if that company relocates.
- Constraints are restrictions, either self-imposed or external, that limit how governments allocate or acquire resources. While manageable in stable times, these can become critical obstacles during emergencies, such as a natural disaster.
GASB 102 requires governments to assess whether these risks could lead to significant financial impacts and to disclose their findings transparently.
Why Should Governments Care?
Stakeholders, from taxpayers to oversight agencies, rely on accurate financial statements to assess a government’s health. Risks like concentrations and constraints can disrupt financial stability, but without disclosure, they remain invisible. GASB 102 helps governments spotlight these risks, improving transparency and accountability while encouraging proactive risk management.
By disclosing potential vulnerabilities, governments can demonstrate preparedness, build stakeholder trust, and enhance their financial resilience.
What Will Governments Need to Disclose?
If a concentration or constraint exists and poses a substantial risk, governments must provide clear details, including:
- The nature of the risk.
- Events that could trigger significant financial impacts.
- Mitigation plans in place to address these risks.
This structured disclosure transforms financial statements from static reports into insightful narratives about a government’s financial trajectory and resilience.
When Does GASB 102 Take Effect?
GASB 102 is effective for fiscal years beginning after June 15, 2024, with early adoption encouraged. Governments should begin preparing now to meet these new disclosure requirements.
Why GASB 102 Matters
While GASB 102 may not grab headlines, its impact is profound. By spotlighting concentrations and constraints, it enhances financial transparency and accountability, ensuring stakeholders can make informed decisions. For governments, it’s more than a compliance exercise—it’s an opportunity to strengthen financial management and showcase resilience.
The Bottom Line
GASB 102 is a crucial step forward in governmental financial reporting. It highlights hidden risks, emphasizes the importance of proactive management, and fosters trust between governments and their stakeholders. With early preparation and careful implementation, governments can leverage GASB 102 to not only meet reporting standards but also strengthen their financial foundations.
As always, the experts at LSL CPAs are ready to guide your team through these changes and ensure you’re prepared for a successful transition.
