As organizations and entities that are receiving federal funding, it’s crucial to stay informed about the evolving federal grants landscape, particularly in light of recent developments under President Donald Trump’s administration and the actions of the Department of Government Efficiency (DOGE).

The halting of federal grants and funding has raised significant challenges for organizations reliant on these resources. The uncertainty surrounding federal funding, exacerbated by political shifts and economic factors, necessitates a proactive approach to financial reporting and disclosures. As organizations assess their financial positions, it’s essential to consider the potential impact of these developments on liquidity and going concern evaluations.

Prepare your organization for necessary disclosures in your financial statements, specifically focusing on risks and uncertainties under Governmental Accounting Standards Board (GASB) Statement 102 and Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 275, with the following insights into effective evaluation of risks and uncertainties.

Background

Considering the potential funding challenges posed by current federal administration policies and the actions of DOGE, it’s imperative organizations receiving federal funding conduct thorough evaluations of their financial disclosures.

By understanding the requirements under GASB 102 and FASB ASC 275, you can prepare financial statements that accurately reflect the potential impacts of funding halts and liquidity issues.

As you draft your disclosures, consider the implications for going concern evaluations and be proactive in communicating any uncertainties to stakeholders. Staying informed and prepared will help navigate these turbulent times effectively. By maintaining transparency and adhering to the relevant accounting standards, your organization can better communicate the risks associated with federal funding uncertainties.

GASB 102 Risks and Uncertainties

Under GASB Statement No. 102, Certain Risk Disclosures, entities must disclose information regarding risks and uncertainties that could materially affect their financial statements. This includes any uncertainties related to the availability of federal funding.

Evaluating Disclosures

When evaluating what to disclose under GASB 102, consider the following:

• Concentration of Funding. Gauge if the entity has a concentration of federal funding – where there is a lack of diversity related to the provider of resources and inflow of resources.
• Constraint by the Federal Administration. Consider the limitations that are being imposed by the current federal administration through its actions – limiting the funding and spending of federal funding with all the evolving changes.
• Materiality of Grants. Evaluate whether the federal grants in question are material. If the grants represent a significant portion of your funding or budget, it’s essential to disclose the potential impacts of funding halts.
• Nature of the Uncertainty. Assess whether the halt in federal funding has material impact. This includes evaluating the likelihood of future funding resuming and the potential impact on operations.
• Timing of Disclosures. If there are significant uncertainties with the concentration and constraints regarding federal funding, these should be disclosed in the footnotes, including any events or actions taken in response to mitigate the risk.
• Liquidity Issues. If the halt in federal funding creates liquidity challenges, it’s essential to evaluate the potential need for additional disclosures regarding your ability to meet obligations. This includes assessing cash flow projections and any reliance on federal grants for sustainability.

Going Concern Considerations

If the halt in funding raises concerns about your organization’s ability to continue as a going concern, a deeper evaluation is warranted. Management should consider:

• The duration of the funding halt and its potential impact on operations.
• Any plans in place to mitigate the effects of funding loss, such as alternative funding sources or cost-cutting measures.

FASB ASC 275 Disclosures of Risks and Uncertainties

Under FASB ASC Topic 275, Risks and Uncertainties, organizations must evaluate and disclose information about the risks and uncertainties existing as of the date of the financial statements. This includes assessing the likelihood of receiving federal funding and any implications of funding halts.

Evaluating Disclosures

When evaluating disclosures under ASC Topic 275, consider the following:

• Risk of the Reduction or Stoppage of Funding. Evaluate how heavily reliant is the organization on federal funding, and if it is material, the organization would need to disclose in their financial statements the risk of funding cuts or reductions.
• Impact on Operations. Determine whether the potential effects of funding changes could disrupt the organization's ability to meet its obligations or continue its operations. The organization may need to disclose how such risks could impact its ability to maintain services, achieve goals, or fulfill its mission.
• Contingencies and Assumptions. The organization might need to outline any assumptions they are making about future federal funding levels. If they are assuming continued funding, the organization should disclose this assumption and indicate the uncertainty involved.
• Risk Mitigation. Evaluate and disclose any plans that the organization might have in place to mitigate the risks posed by potential federal funding changes. This could include diversifying funding sources, cutting costs, or identifying alternative revenue streams. The organization might also rely on financial reserves to weather periods of uncertainty. If applicable, they should disclose the use and status of any reserves set aside for funding shortfalls or crises.

Going Concern Considerations

If liquidity issues arise due to halted federal funding, a comprehensive evaluation of going concern assumptions is critical. Management should consider:

• The extent to which funding is necessary for ongoing operations.
• The timeframe for potential funding resumption and any alternative funding strategies.
• The overall financial health of the organization and any plans to address funding shortfalls.

We’re Here to Help

To learn more about disclosures of risks and uncertainties for your organization, contact your Moss Adams professional.

Additional Resources

• Not for Profit Practice
• Government Services Practice