On November 1, 2017, the Governmental Accounting Standards Board (GASB) issued an exposure draft of a proposed statement outlining new guidance for financial reporting when a tribe owns or acquires a majority or 100% equity interest in a business or other entity. The GASB is currently seeking tribal input on these proposed changes.
Proposed Changes
Majority Equity Interest in a Legally Separate Organization (Less than 100%)
The proposed guidance for these holdings falls into two categories based on whether or not the holding meets the definition of an investment as provided in GASB Statement No. 72, Fair Value Measurement and Application:
- Meets definition of investment. A tribe would report the holding as an investment and measure the investment using the equity method. These types of holdings wouldn’t be presented as a component unit of the tribe.
- Doesn’t meet definition of investment. A tribe would report the holding as a component unit and report an asset representing the tribe’s equity interest in the fund or entity that holds the equity interest. The investment would be measured using the equity method.
The GASB didn’t use this proposal to address tribal concerns about whether these entities would potentially be allowed to follow FASB, which means existing guidance still applies.
100% Equity Interest in a Legally Separate Organization
GASB Statement No. 69, Government Combinations and Disposals of Government Operations, previously didn’t provide guidance on how to account for acquisitions when the acquired entity would remain a legally separate organization.
The proposed guidance provides direction, indicating the acquired entity should measure the following items at the date of acquisition in accordance with acquisition value as described in paragraphs 29–42 in Statement No. 69 and amended in the proposed guidance:
- Assets
- Deferred outflows and inflows
- Liabilities
Under the proposed guidance, tribes are required to report these types of holdings or acquisitions as component units. They should continue to report assets for their equity interest in these entities, which will equal the net position of the component unit.
Planned Effective Date
The proposed guidance is expected to be effective for periods beginning after December 15, 2018.
How to Provide Comments
Tribes have the opportunity to provide feedback regarding the proposed statement found on the GASB website. Written comments are due by January 19, 2018. Information on how to submit written comments can be found here.
We're Here to Help
If you have questions about how the proposed statement might affect your tribe, casino, or tribal enterprise, contact your Moss Adams professional.