The Governmental Accounting Standards Board released guidance Monday requiring state and local governments to disclose information about certain risks.
While governments are already required to disclose information about their exposure to some kinds of risks, including interest and credit risk associated with investments, essential information about certain other risks that are prevalent among state and local governments isn't routinely disclosed because it's not explicitly required. The new guidance aims to provide financial statement users with information about certain risks when circumstances make a government vulnerable to a heightened possibility of loss or harm.
(a) The Statement defines a concentration as a lack of diversity related to an aspect of a significant inflow or outflow of resources — such as a small number of companies that represent a majority of employment in a government's jurisdiction, or a government that relies on one revenue source for most of its revenue.
(b) The Statement defines a constraint as a limitation imposed on a government by an external party or by formal action of the government's highest level of decision-making authority — such as a voter-approved property tax cap or a state-imposed debt limit.
Concentrations and constraints can restrict a government's ability to acquire resources or control spending.
Disclosure criteria
The Statement generally requires a government to disclose information about a concentration or constraint if all the following criteria are met:
(a) The concentration or constraint is known to the government prior to issuing the financial statements.
(b) The concentration or constraint makes the government vulnerable to the risk of a substantial impact.
(c) An event or events associated with the concentration or constraint that could cause a substantial impact 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.
Note disclosures
The disclosures should include a description of the following:
- The concentration or constraint,;
- Each event associated with the concentration or constraint that could cause a substantial impact if the event has occurred or has begun to occur prior to the issuance of the financial statements; and
- Actions taken by the government to mitigate the risk prior to the issuance of the financial statements.
Statement 10's requirements become effective for fiscal years starting after June 15, 2024, and all reporting periods thereafter, but GASB is encouraging earlier application of the guidance.
