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GASB guidance expands risk-related reporting requirements

January 10, 2024

GASB has issued guidance that requires governments to disclose information about risks related to certain concentrations and constraints.

GASB Statement No. 102, Certain Risk Disclosures, defines a concentration as "a lack of diversity related to an aspect of a significant inflow of resources or outflow of resources." It defines a constraint as "a limitation that is imposed by an external party or by formal action of a government's highest level of decision-making authority."

Examples of a concentration, according to a news release, include when a small number of companies represent a majority of employment in a government's jurisdiction or when a government relies on one source for most of its revenue. Examples of constraints include a voter-approved property tax cap or a state-imposed debt limit.

According to the news release, the new statement is "meant to provide financial statement users with information about certain risks when circumstances make a government vulnerable to a heightened possibility of loss or harm."

Effective for fiscal years beginning after June 15, 2024, government entities are required to disclose information about a concentration or constraint if:

  1. It is known to the government prior to issuing the financial statements;
  2. It makes the government vulnerable to the risk of a substantial impact; and
  3. 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.

[Journal of Accountancy]

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