The Governmental Accounting Standards Board (GASB) recently issued Statement No. 102, which adds new disclosure requirements for governments. Numerous risks loom over state and local governments, which could impair their service delivery or hinder their capacity to fulfill obligations in a timely manner. While certain risks demand disclosure, many others that commonly plague these governments have not been disclosed because they were not explicitly required. To address this gap, Statement No. 102 was issued with the intention to provide stakeholders of government financial statements with indispensable details concerning risks that stem from limitations or concentrations, exposing governments to vulnerabilities.
Podcast host, Danny Martinez, Managing Director and Government & Public Sector Accounting Advisory Lead, is joined by Scott Anderson, Director, to dive into the challenges, changes and key considerations for GASB 102.
As part of our GPS podcast series, and the third in our GASB mini-series for 2024, this episode covers:
- The GASB 102 basics
- When GASB 102 is effective
- Background on why GASB took on the project
- Why it took more than three years from agenda to issuance
- If the GASB board members able to all get on the same page
- Risks that should be considered when adopting this guidance
- Impact GASB 102 will have on governments
- Key takeaways
Do You Need Assistance with GASB 102?
Cherry Bekaert’s Government and Public Sector Accounting Advisory team provides a comprehensive GASB-as-a-service offering that helps governments overcome staffing and technical challenges. Cherry Bekaert has a dedicated team of professionals who solely provide governmental accounting advisory services for governments, equipping them with the confidence that their needs will not be placed second to competing audit regulatory deadlines.
Related Insights:
- Podcast: Navigating GASB 100: Accounting Changes and Error Corrections
- Article: Navigating GASB 100: Accounting Changes and Error Corrections
- Podcast: Navigating GASB 101: Compensated Absences
- Article: Navigating GASB 101: Compensated Absences
View All Government & Public Sector Podcasts
HOST: Welcome and thanks for listening to Cherry Bekaert's Government and Public Sector podcast series. In each episode, we hear from the best in the business on the latest challenges, trends, and opportunities affecting the government and public sector.
CHRISTIAN FUELLGRAF: I am Christian Fuellgraf, leader of Cherry Bekaert's Government and Public Sector industry team. I hope you enjoy the episode, and thank you for joining.
DANNY MARTINEZ: Hello everyone. I am excited to be continuing our series on newly released GASB standards with Scott. Today, we will be covering GASB 102, *Certain Risk Disclosures*.
DANNY MARTINEZ: My name is Danny Martinez, and I lead our national Government and Public Sector Accounting Advisory Group. Within our group, we assist with governmental accounting and financial reporting.
DANNY MARTINEZ: If you find yourself needing additional staffing, GASB expertise, or help drafting the ACFR, we can assist. We also handle tasks such as bank reconciliations and implementing new accounting standards.
DANNY MARTINEZ: I am happy to be your host today. Scott, welcome again. Will you please introduce yourself?
SCOTT ANDERSON: My name is Scott Anderson. I have been with the firm for almost 19 years.
SCOTT ANDERSON: I wear two hats within the firm. I am the technical lead on our government and public sector audit practice, and I also help Danny on the advisory side.
SCOTT ANDERSON: I provide accounting and financial reporting services to clients who need those resources. I am happy to be here.
DANNY MARTINEZ: All right, let’s go ahead and start. We have podcasts in this series on GASB 100 and GASB 101, as well as webinars and articles.
DANNY MARTINEZ: Now we are moving on to GASB 102. Can you tell me what GASB 102 is and when it will be effective?
SCOTT ANDERSON: This is a pronouncement that is near and dear to my heart. When I was at the GASB, I spent some time on this project.
SCOTT ANDERSON: I have the rare distinction of not being involved in any of the decisions that were made. I joined after many technical decisions had been finalized, but I helped put together the exposure draft.
SCOTT ANDERSON: This pronouncement only requires disclosures, so there is no accounting guidance here. It requires disclosures when certain narrowly defined risks impact a government's ability to provide services or meet its obligations.
SCOTT ANDERSON: It will be effective for fiscal years beginning after June 15, 2024. For governments with a fiscal year ending June 30, 2025, they will be the first ones to implement this guidance.
DANNY MARTINEZ: Great. Some of our government listeners might be thinking they already disclose risks, like credit risk, in the notes to the financial statements.
DANNY MARTINEZ: Can you give them some background on why the GASB took on this project?
SCOTT ANDERSON: This project had been on the list of potential projects for a long time. When the GASB issued GASB 62, it incorporated some AICPA and FASB guidance into the GASB literature.
SCOTT ANDERSON: They considered FASB Topic 275, *Certain Risks and Uncertainties*, and whether that should be incorporated into the GASB Codification. At that time, they held off to assess it in light of the government environment.
SCOTT ANDERSON: We still see some remnants of it in financial statements, such as the significant estimate footnote. While not required by the GASB, many auditors required it because it is standard in FASB statements.
SCOTT ANDERSON: This project evaluated that, and ultimately, some items in FASB Topic 275 did not make the cut. There is no requirement to disclose estimates or concentrations if that is all you have.
SCOTT ANDERSON: This really gained ground with COVID-19. That event resulted in many governments struggling, but there was no requirement to disclose those effects. That is where this project started.
DANNY MARTINEZ: You mentioned it being on the list for a while. It makes sense that COVID-19 was the impetus for this to be put on the GASB agenda in September 2020.
DANNY MARTINEZ: It was in the works for a little over three years from when it was added to the technical agenda to the issuance of the final pronouncement. Can you give us some behind-the-scenes insight into why it took that long?
SCOTT ANDERSON: I do not think it was anticipated to take that long. The project was assigned to a practice fellow, and the thought was she would finish it in her two-year period.
SCOTT ANDERSON: However, they stopped and wanted to conduct more outreach. Each board member agreed there needed to be a disclosure requirement, but there was a lot of deliberation about what was required to get to that end result.
DANNY MARTINEZ: You mentioned there was a lot of back and forth with the board members. Were they able to get on the same page regarding the specifics?
SCOTT ANDERSON: No, they actually were not. In the exposure draft, there was one alternative view shared by two board members.
SCOTT ANDERSON: One of those was the GASB chair, which is a rare thing. The alternative view related to the likelihood of an event happening.
SCOTT ANDERSON: For most of the project, "reasonably possible" was the threshold, and many board members felt that would result in too many disclosures. They wanted to test drive Concept Statement 7 and include essential information, but nothing more.
SCOTT ANDERSON: Even when the final pronouncement was issued, board member Jackie Reck dissented. She was not on the board when the exposure draft went out.
SCOTT ANDERSON: She believes the standard should look closer to FASB Topic 275. In other words, if there is a concentration, it should be disclosed regardless of whether an event occurs.
DANNY MARTINEZ: That leads into my next point. Many articles discuss the definitions of concentrations and constraints.
DANNY MARTINEZ: For this podcast, can you give us examples of the risks that should be considered when adopting this guidance?
SCOTT ANDERSON: The general premise of this standard is that you have a condition that, when combined with an event, equals a substantial impact. The board narrowed those conditions down to concentrations and constraints.
SCOTT ANDERSON: The door is not open for every risk a government faces. If they have a concentration, such as one major employer or a workforce covered by the same collective bargaining agreement, that condition does not require disclosure by itself.
SCOTT ANDERSON: However, if an event occurs that makes the government vulnerable to a substantial impact, a disclosure is required. This coincides with pre-agenda research the GASB has been doing on going concern considerations.
SCOTT ANDERSON: It has been difficult for auditors to determine when going concern is applicable for governments since they do not really go out of business. This is a middle ground where disclosure is required when a government is vulnerable.
DANNY MARTINEZ: You mentioned this being a disclosure requirement. What impact do you see this having on governments regarding volume and the controls or evaluations needed at year-end?
SCOTT ANDERSON: During deliberations, it was repeatedly noted that these conditions are things governments already know about. There is not supposed to be an exhaustive search for these conditions.
SCOTT ANDERSON: Governments should know when they have a constraint, such as a property tax limit or a debt ceiling. The work comes with evaluating when an event will happen.
SCOTT ANDERSON: If you have a property tax limit and an immense capital expenditure arises, or a federal agency imposes an unfunded mandate, that event must be assessed. You must determine if there will be a substantial impact on your ability to provide services.
SCOTT ANDERSON: This involves professional judgment. "Substantial" is not well-defined in GASB literature, so this guidance is filled with professional judgment, which can make people uncomfortable.
DANNY MARTINEZ: That is a strong takeaway for our audience. As we end our podcasts, we ask for one final takeaway. What would you like our audience to know about GASB 102?
SCOTT ANDERSON: One interesting thing is that you might not expect state governments to be in a position where a concentration or constraint would impact them. You would expect this to apply mostly to smaller governments or tourist destinations.
SCOTT ANDERSON: However, the definition of a constraint includes a limitation imposed by an external party or by formal action of the government's highest level of decision-making authority. That is specific for a state government.
SCOTT ANDERSON: For a state, the highest level of decision-making authority is the general assembly passing laws. This is just as constraining as an external restriction, so it applies at both levels, which may not be obvious initially.
DANNY MARTINEZ: Being in Texas, I can think of several things at the state level that local governments would need to consider. Thank you, Scott, for this third installment in our podcast series.
DANNY MARTINEZ: If you would like to reach out to Scott, you can contact him at sanderson@cbh.com. We have two Scott Andersons at the firm, so please reach this Scott at sanderson@cbh.com.
DANNY MARTINEZ: You can also reach me at danny.martinez@cbh.com. We are currently booking for fiscal year 2024 year-end and ACFR assistance.
DANNY MARTINEZ: If you have a June 30 or September 30 year-end, please reach out. We would be happy to discuss how we are helping governments across the country strengthen their financial reporting and increase their expertise.
CHRISTIAN FUELLGRAF: This is Christian Fuellgraf again. I hope you enjoyed this episode and look forward to our next one. Don't forget to subscribe.
