On July 25, 2017, the American Institute of CPAs (AICPA) issued a set of technical questions and answers (TQAs) to provide clarification in TQA Section 9160, Other Reporting Issues.
The TQAs provides guidance for auditors when issuing opinions on the financial statements of tribal governments and other government entities that choose to prepare them in accordance with accounting standards as promulgated by the Financial Accounting Standards Board (FASB) rather than the Governmental Accounting Standards Board (GASB).
Entities that meet the GASB’s definition of a government and elect or are otherwise required to follow US GAAP (GAAP) are required to prepare financial statements that adhere to GAAP as promulgated by the GASB. However, some entities want the option to prepare their financial statements in accordance with FASB principles rather than GASB principles because of these reasons:
- Banks or other third parties have requested it.
- Finance and accounting team members who may have come from the private sector are more familiar with it.
- Tribes and other government entities view it as a preferable option for certain business-type activities because the reporting is more comparable to other privately held businesses operating in the industry.
When a tribal business prepares FASB financial statements, auditors should evaluate whether the accounting principles and presentation of the financial statements and related notes are materially different than those required by the GASB. Only when the differences in presentation and disclosures are determined to be immaterial could an auditor consider providing an unmodified audit opinion. If the differences are determined to be material, the auditor would modify his or her opinion, which generally means the financial statements, or an element thereof, are materially misstated or misrepresented.
Some tribal governments and their enterprises have questioned whether FASB financial statements could be considered a special purpose framework (SPF). The TQAs clarify that the FASB isn’t considered an SPF for GASB reporters.
A New Option
The TQAs provide tribes with the option of a dual-audit opinion. When financial statements are prepared using FASB principles, although an adverse opinion on GAAP would still be issued for GASB reporters within the independent auditor’s report, if appropriate, an auditor can now include an additional paragraph to issue an unmodified opinion on the financial statements prepared under the FASB principles.
Entities that meet the definition of a government and have issued FASB financial statements in the past will want to discuss this option with banks, regulators, and other third parties that require FASB reporting to determine if the dual-audit opinion is the best option for all involved parties. If it isn’t, the next step would be to educate these third parties so they better understand that GAAP for a tribal business requires reporting under GASB principles.
We’re Here to Help
If you have questions about how the answers provided in the TQAs could impact your tribe, casino, or other tribal enterprise, contact your Moss Adams professional.