United States

The GASB FASB challenge for tribal casinos


Summer 2012

When it comes to preparing financial statements, tribal casinos historically have used standards promulgated for either commercial or government reporting entities by the Financial Accounting Standards Board (FASB) and Governmental Accounting Standards Board (GASB) respectively.

An industry-specific hierarchy of generally accepted accounting principles (GAAP) has not been created for U.S. Native American tribes and related reporting entities. Over the years, guidance issued by the American Institute of Certified Public Accountants (AICPA), the Native American Finance Officers Association (NAFOA), and generally accepted industry practice have evolved to a point that generally supports use of the hierarchy of standards promulgated by the GASB for the preparation of comprehensive annual financial reports and the basic financial statements of most tribal reporting entities.

Definition of a governmental entity
The AICPA Audit and Accounting Guide, State and Local Governments (AAG-SLV Guide), indicates that governmental entities are subject to generally accepted accounting principles (GAAP) for state and local governments as described in the AAG-SLV Guide. Entities are governmental if they have one or more of the following characteristics:

  • Popular election of officers or appointment (or approval) of a controlling majority of the members of the organization's governing body by officials of one or more state or local governments
  • The potential for unilateral dissolution by a government with the net assets reverting to a government
  • The power to enact and enforce a tax levy

Entities are also presumed to be governmental if they have the ability to issue directly (rather than through a state or municipal authority) debt that pays interest exempt from federal taxation. However, entities possessing only that ability (to issue tax-exempt debt) and none of the other governmental characteristics may rebut the presumption that they are governmental.

Many U.S. Native American tribes and related reporting entities, such as casino funds or component units, meet one or both of the first two characteristics identified above. Those entity's GAAP financial statements should be prepared in accordance with the hierarchy of standards promulgated by the GASB.

Acknowledgment of entities outside the governmental definition
The AAG-SLV Guide also acknowledges that although some recognized tribes and their related reporting entities may not meet the definition of governmental entities above, many use governmental accounting and financial reporting guidance to prepare their financial statements.

A member of the NAFOA sits on the Governmental Accounting Standards Advisory Committee (GASAC). The NAFOA sponsored Financial Reporting Model for Tribal Governments is based on the GASB reporting hierarchy.

Certain separate legal entities (e.g., component units, joint ventures, corporations), including those created by tribes reporting in accordance with GAAP as promulgated by the GASB, that do not meet the criteria in Paragraph 1.01 of the AAG-SLV Guide (may elect to consistently prepare their financial statements in accordance with GAAP as promulgated by the FASB.

Employee benefit plan requirements
Employee benefit plans are frequently not separate legal entities. However, they are typically controlled or administered by the sponsor (or the sponsor's designee, e.g., agent, administrator or trustee). When an employee benefit plan is sponsored or administered by a governmental reporting entity as defined above, the appropriate GAAP for the financial statements of the plan is promulgated by the GASB.

Although the audit objectives for governmental pension plans are similar to those for private-sector pension plans, ERISA− which generally applies to private-sector pension plans − does not apply to most governmental entities. However, certain plans of U.S. Native American tribes' enterprise activities including casinos may be subject to Department of Labor (DOL) audit and reporting requirements. Whether or not the plan is subject to DOL reporting is not significant to the determination of the proper GAAP hierarchy. Management is responsible for determining applicable audit and reporting requirements. To date, the DOL has not provided for use of the GAAP as promulgated by the GASB. Therefore, until we hear otherwise from the DOL, we recommend governmental entities filing with the DOL expand their disclosures within the framework of the governmental reporting model for employee benefit plans to bridge the gap between the FASB and GASB reporting hierarchies.

Keith Stoneburner, partner, Duluth, Minn.
Bob Houle, director, Duluth, Minn.
Brian A. Schebler, national director, Bloomington, Minn.