The GASB has issued an Exposure Draft to provide some additional guidance related to disclosures of certain governmental risks. The GASB noted that essential information about some risks is not being regularly disclosed due to the disclosures not being explicitly required.
The Exposure Draft focuses on providing information to the users of governmental financial statements regarding certain concentrations and constraints that are common in the governmental space.
This Exposure Draft defines a concentration as a lack of sufficient diversity related to an aspect of a significant revenue source or expense. A constraint is defined 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. Both matters may limit a government’s ability to acquire resources or control spending.
The Exposure Draft would require that governments assess if any events that related to a concentration or constraint have occurred or is more likely than not to begin to occur within 12 months of the financial statement date or shortly thereafter (for example, 3 months). The Exposure Draft would also require a government to assess whether it would be at least reasonably possible that within three years of the financial statement date, the event would cause there to be a substantial effect on the government’s ability to provide services at the level provided in the current reporting period or meet its obligations as they come due.
If the above matters are identified, disclosure would be made in the footnotes describing the concentration or constraint. The disclosure would describe the concentration or constraint as well as the event associated with the concentration or constraint and any actions taken by the government prior to the issuance of the financial statements to mitigate the effect.
The Exposure Draft, if approved, would be effective for fiscal years beginning after June 15, 2023, and all reporting periods thereafter. Earlier application would be encouraged.
The full text of the Exposure Draft can be found here.
Readers should not act upon information presented without individual professional consultation.