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Notice to ReadersThe Financial Reporting and Information Guide for Tribal Governments and Enterprises (the Guide) has been carefully prepared by NAFOA’s Financial Management Advisory Committee. It has been informally reviewed by accounting standard setters; however, the Guide is intended for general guidance only and is not a substitute for detailed research of applicable professional literature taking into consideration your tribal government’s unique operating environment. The Guide should not be construed as legal, accounting, tax, or other professional advice. NAFOA advises that you consult with advisors concerning specific matters in making decisions. This Guide includes excerpts and references to the following:

• Governmental Accounting Standards Board (GASB) Codification, as of June 30, 2016.

• American Institute of Certified Public Accounting (AICPA) Audit and Accounting Guide State and Local Governments, updated as of March 1, 2016

Readers should consult the most recent versions of GASB and AICPA literature to ensure consideration of changes made subsequent to the versions referenced in this Guide.

Financial Reporting and Information Guide for Tribal Governments and EnterprisesOur thanks go to the following tribes and/or organizations that allowed their individual team members to assist in making the Financial Reporting and Information Guide for Tribal Governments and Enterprises a success. The Guide assists users, preparers, attesters, creditors, investors and others with a better understanding of financial reporting and generally accepted accounting principles for tribal governments and their enterprises. Without the support and commitment of those listed below, this project would not have been possible.

IVIII

Foreword ---------------------------------------------------------------------------------------------- 1

Acknowledgements ------------------------------------------------------------------------------------- 2

Chapter One Introduction to the Guide ----------------------------------------------------------------- 4

1.1 Overview and Introduction --------------------------------------------------------------------- 4

1.2 Unique Aspects of Indian Tribes ---------------------------------------------------------------- 5

1.3 Purpose of This Guide ------------------------------------------------------------------------- 5

Chapter Two Overview of Financial Reporting --------------------------------------------------------- 8


2.2 Financial Reporting Frameworks --------------------------------------------------------------- 9

2.3 Governmental Accounting and Financial Reporting -------------------------------------------- 13

2.4 The Financial Reporting Entity ----------------------------------------------------------------- 17

2.5 Individual Fund Financial Statements ---------------------------------------------------------- 19

2.6 Reporting Issues ------------------------------------------------------------------------------- 20

2.7 Overview of Financial Reporting Questions and Answers --------------------------------------- 21

Chapter Three Reporting to Tribal Leadership and Members/Citizens ----------------------------------- 32


3.2 Reporting to Tribal Leadership ----------------------------------------------------------------- 33

3.3 Orientation for Leadership --------------------------------------------------------------------- 35

3.4 Reporting to Members/Citizens ---------------------------------------------------------------- 36

Chapter Four Financing and the Ability to Borrow ------------------------------------------------------ 40


4.2 Credit Quality --------------------------------------------------------------------------------- 41

4.3 Unique Considerations for Tribal Credits ------------------------------------------------------- 43

4.4 How Lenders Use Financial Statements -------------------------------------------------------- 44

4.5 Sources of Capital ------------------------------------------------------------------------------ 48

4.6 The Financing Process -------------------------------------------------------------------------- 50

4.7 The Term Sheet -------------------------------------------------------------------------------- 52

Chapter Five Governmental Activities------------------------------------------------------------------- 54


5.2 Measurement Focus and Basis of Accounting --------------------------------------------------- 54

5.3 Equity Interests in Component Units and Joint Ventures Owned by Governmental Fund and Governmental Activities ---------------------------------------------- 56

5.4 Permanent Funds ------------------------------------------------------------------------------ 57

5.5 Reservation Lands ----------------------------------------------------------------------------- 57

5.6 Reporting Governmental Activities Questions and Answers ------------------------------------ 58

Chapter Six Business and Business-Type Activities ------------------------------------------------------ 64


6.2 Reporting Business and Business-Type Activities ----------------------------------------------- 65

6.3 Component Unit or Investment? --------------------------------------------------------------- 66

6.4 Illustrative Scenarios --------------------------------------------------------------------------- 71

6.5 Reporting Business and Business-Type Activities Questions and Answers ----------------------- 78

Table of Contents

V VI

Chapter Seven Fiduciary Activities --------------------------------------------------------------------- 90


7.2 Reporting Fiduciary Activities ------------------------------------------------------------------ 90

7.3 Reporting and Compliance Under ERISA ------------------------------------------------------ 92

7.4 How Trust Requirements Impact Reporting and Compliance ----------------------------------- 92

7.5 GASB versus FASB Financial Reporting ------------------------------------------------------- 93

7.6 Historical Reference for Determining ERISA Status ------------------------------------------- 94

7.7 Compliance During the PPA Transition Period ------------------------------------------------- 94

7.8 Fiduciary Activities Questions and Answers ---------------------------------------------------- 95

Chapter Eight Common Special Purpose Entities ------------------------------------------------------- 98


8.2 Healthcare ------------------------------------------------------------------------------------- 99

8.3 Housing --------------------------------------------------------------------------------------- 100

8.4 Gaming ---------------------------------------------------------------------------------------- 102

8.5 Tribal Schools ---------------------------------------------------------------------------------- 105

Chapter Nine Federal Contracts and Grants ------------------------------------------------------------- 108


9.2 Financial Reporting Requirements ------------------------------------------------------------- 109

9.3 Audit and Other Compliance Requirements ---------------------------------------------------- 111

9.4 Resolving Audit Findings ---------------------------------------------------------------------- 113

9.5 Federal Contracts and Grants Questions and Answers ------------------------------------------ 114

Chapter Ten Federal Tax and Information Reporting ---------------------------------------------------- 116

10.1 Overview and Introduction ------------------------------------------------------------------- 116

10.2 Unincorporated Divisions or Instrumentalities of a Tribal Government ------------------------ 116

10.3 Political Subdivisions of the Tribal Government ----------------------------------------------- 117

10.4 Tribal Government-Controlled Business Corporations ---------------------------------------- 117

10.5 Government-Controlled Limited Liability Companies (LLCs) -------------------------------- 119

10.6 Tribal Joint Ventures -------------------------------------------------------------------------- 119

10.7 General Rules Governing the Taxation of Native Americans ----------------------------------- 120

10.8 Special Statutory Exemptions and Exclusions ------------------------------------------------- 120

10.9 Reporting and Withholding of Tax on Indian Gaming Distributions --------------------------- 121

10.10 Tribal Employer Tax Issues ------------------------------------------------------------------ 121

10.11 Reporting Taxable Payments to Independent Contractors and Others------------------------- 122

10.12 Tribal Employee Pension Plan Issues --------------------------------------------------------- 122

10.13 Tribal Excise Tax Issues ---------------------------------------------------------------------- 123

10.14 Patient Protection and Affordable Care Act IRS Information Reporting --------------------- 123

Appendix A Native American Finance Officers Association --------------------------------------------- A-1

Appendix B Tribal Members, Organizations, and Resources --------------------------------------------- B-1

Appendix C Tribal Government Financial Reporting Resources ----------------------------------------- C-1

Appendix D The Financial Reporting Entity ------------------------------------------------------------- D-1

Appendix E NAFOA’s Position on Certain Financial Reporting Issues ---------------------------------- E-1

E.1 NAFOA’s Position on Privacy of Tribal Government Financial Statements---------------------- E-1

E.2 NAFOA’s Position on FASB-Based Financial Statements of Tribal Entities--------------------- E-7

Appendix F Glossary of Acronyms ---------------------------------------------------------------------- F-1

Appendix G Illustrative Financial Statements ----------------------------------------------------------- G-1

G.1 Management Discussion and Analysis --------------------------------------------------------- G-4

VII 1

G.2 Tribe-Wide Financial Statements -------------------------------------------------------------- G-14

G.3 Governmental Fund Financial Statements ----------------------------------------------------- G-16

G.4 Proprietary Fund Financial Statements -------------------------------------------------------- G-20

G.5 Fiduciary Fund Financial Statements ---------------------------------------------------------- G-24

G.6 Notes to Financial Statements ----------------------------------------------------------------- G-25

G.7 Required Supplementary Information --------------------------------------------------------- G-49

G.8 Combining Financial Statements -------------------------------------------------------------- G-52

G.9 Component Unit Financial Statements -------------------------------------------------------- G-62

Appendix H Working Papers ---------------------------------------------------------------------------- H-1

H.1 Trial Balance — Governmental Funds --------------------------------------------------------- H-2

H.2 Adjustments to Fund Financial Statements for Tribe-Wide Presentation ----------------------- H-7

H.3 Calculation of Depreciation Expense for Governmental Funds by Program --------------------- H-19

H.4 Road Network -------------------------------------------------------------------------------- H-21

H.5 Water System Network ------------------------------------------------------------------------ H-22

H.6 Summary of Internal Service Fund Entries for Tribe-Wide Presentation ------------------------ H-23

H.7 Calculation of Distributions and Transfers ---------------------------------------------------- H-24

H.8 Major Funds Determination ------------------------------------------------------------------- H-25

ForewordIt has been 14 years since the first edition of the New Financial Reporting Model for Tribal Governments: Implementing GASB Statement 34 and ten years since the Tribal Gaming: A Guide to Accounting and Financial Reporting from NAFOA was released. Many accounting and financial reporting standards have been implemented since the previous NAFOA guides were published. The Financial Reporting and Information Guide for Tribal Governments and Enterprises continues the work of the previous guide by recognizing that tribal governments are sovereign nations that have a unique operating environment due to the federal Indian trust responsibility and treaty rights, as well as directions from federal statutes and court cases.

This guide updates and expands the content of the previous two guides, establishes a current uniform financial reporting model for tribal governments, and includes topics not discussed in general accounting literature. The guide addresses the complex economic activity and related entity differences and presents an overview of the financial reporting framework in a tribal setting. New chapters were created to provide an overview of reporting on common entities such as housing, healthcare, education, and enterprises. The guide also includes a question and answer section at the end of select chapters. These common questions were developed by tribal governments and professionals to provide additional context and background on that chapter’s topic. Appendixes were designed to illustrate the application of the requirements and concepts of the financial reporting model as a practical guide for those responsible for preparing financial statements that include governmental and enterprise transactions.

At NAFOA, our mission is to build the financial strength of tribal governments and their enterprises by providing educational forums, professional development, and resources that demonstrate best practices for tribal finance, accounting, and economic development. It is our hope that the Guide will build upon tribes’ financial management policies, thereby fostering economic stability and opportunities, leading to stronger tribal sovereignty.

Jennifer Parisien

Director of Resource Development

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AcknowledgementsThe Guide benefited greatly from NAFOA’s Financial Management Advisory Committee. The members of this group come from varied backgrounds with invaluable knowledge in tribal government finance and have an empathetic understanding of the challenges and needs of Indian Country. The advisory committee has been instrumental in cross-checking best practices, keeping current on developments and pronouncements, and sharing typical challenges tribal governments face in financial reporting. These best practices are real issues that are shared in select chapters’ question and answer sections.

NAFOA gratefully acknowledges the following individuals for their support and commitment to the Guide:

Advisory Group Members1 Affiliation

Corrine Wilson, CPA REDW

Bruce Bleakman, CPA REDW

Lawrence Barton Oneida Nation

William Crader TFA Capital Partners

Nadina Gene, CPA Indian Pueblos Marketing, Inc.

Steven C. Garwood, CPA Morongo Band of Mission Indians

Noel Gianelli, CPA, CGMA Seminole Tribe of Florida

Suresh Geer Seminole Tribe of Florida

Kristi Jackson TFA Capital Partners

Barbara L. Montour, CPA Akwesasne Mohawk Nation

Kathleen Nilles Holland & Knight LLP

Kris Nixon, CPA CliftonLarsonAllen

Shawn Ray, CPA, CGMA Seminole Tribe of Florida

Tasha Repp, CPA Moss Adams

Braxton Sato TFA Capital Partners

Allard P. Teeple Jr. KeyBank Native American Financial Services

Kristy VanderMolen, CPA BDO USA, LLP

Derrick Watchman Navajo Nation Gaming Enterprise

Don Williams, CPA BKD, LLP

Robert Yoder Yoder & Langford, P.C.

1 The members and organizations of the Financial Management Advisory Committee do not necessarily endorse the answers and other information presented in this Guide. Likewise, they are not responsible for the accuracy of the information provided.

NAFOA is pleased to recognize the special contribution and commitment of REDW for taking a lead in writing many of the chapters in this Guide. Ms. Corrine Wilson is a past NAFOA board member who has served for a number of years instructing NAFOA’s Tribal Financial Manager Certification Program and has over 30 years of experience consulting tribal governments in accounting. Mr. Bruce Bleakman has nearly 40 years of experience in public accounting, has served as a member of the Government Expert Panel of the American Institute of Certified Public Accountants (AICPA), and has contributed to several NAFOA financial reporting model guides.

NAFOA would also like to acknowledge additional staff members at REDW for their valuable input and for contributing their time and technical expertise on the sample financial statements in this Guide.

Without the contributions and expertise of the advisory committee, this Guide would have been a general reference book. And finally, we would like to thank you for your interest in this Guide and the work NAFOA does in serving Indian Country.

4 Chapter 1 Chapter 1 5

1.1 Overview and Introduction In the late 1990s it became evident that there was a need to address the financial reporting requirements of tribal governments, particularly as enterprise activity such as gaming increased. NAFOA, recognizing the unique character of tribal governments and the role finance plays in fostering economic opportunities, began to advocate for the inclusion of a tribal government representative on the Governmental Accounting Standards Advisory Council (GASAC). The GASAC is a committee that helps the Governmental Accounting Standards Board (GASB) determine and prioritize issues and consider the needs of all users of financial information.

At the same time, NAFOA began to develop potential partnerships with other standards setters and lawmakers to present the challenges tribes faced when implementing rules intended for state and local governments. In 2003 the organization published the first edition of this guide, New Financial Reporting Model for Tribal Governments: Implementing GASB Statement 34, which presented tribes with information on implementing the new financial reporting model for governmental entities.

In the second edition, we have expanded the Guide to address additional challenges and financial reporting implementation solutions. Many readers of the first edition wanted to better understand tribal-specific common special-purpose entities, how federal tax and information reporting applies to tribes, and other financial issues specific to tribal governments and related entities. Additionally, as enterprise profits increasingly become more dominant in funding governmental activities, a chapter has been added to help preparers and readers of financial reporting understand the governmental financial reporting model for business-type activities.

Introductionto the Guide

1.1 Overview and Introduction 1.2 Unique Aspects of Indian Tribes 1.3 Purpose of This Guide

1.

1.2 Unique Aspects of Indian TribesIndian tribes have a unique legal and political relationship with the federal government, established by the constitution and affirmed by treaties, statutes, and executive orders. Unlike state and local governments, tribal governments have inherent rights, with many treaties containing promises of federally provided healthcare, education, and housing, to name just a few. This Guide recognizes the important differences between state and local governments and identifies considerations in determining the appropriate accounting and financial reporting for tribal governments and their enterprises.

Today, sovereignty is closely related to both the ability to manage tribal lands and to self-govern. Tribes preserve the right to determine their own governance structure and pass and enforce laws. Governing bodies of tribes are selected in a variety of ways, including popular election and traditional or religious cultural practices that may not involve popular election. This contrasts with the governing bodies of state and local governments, which are comprised of representatives that are either popularly elected or appointed by other state or local governments.

Indian tribes are not generally subject to the laws of states or local jurisdictions, and federal laws that apply to state and local governments often do not apply to tribal governments. The support of federal funding, carried out through grants, cost reimbursement contracts, and other agreements, is based on treaties signed with the U.S. government.

In general, tribal governments have limited tax bases with the inability to levy a property tax on trust lands or to tax populations with limited income. Limited taxation hinders tribal governments’ ability to adequately fund government services such as infrastructure, health care, law enforcement, and education. To supplement federal funding, tribal governments often rely on economic development activity,

which disproportionately carries greater significance among state and local governments.

Although unable to generate revenue through property taxes, tribes have the right to the beneficial use of reservation lands and related resources held in trust by the U.S. government under treaties and other agreements. The right to use reservation land creates a unique opportunity for tribes to promote economic growth, create job opportunities for tribal citizens, and fund government activities through natural resource management.

Additionally, maintaining confidentiality of financial data and information about other tribal activities can be very important to tribal governments. This is especially true when it concerns competition in enterprise and gaming revenues. Tribes keep financial information private unless other arrangements are agreed to, such as when tribes accept federal grants and contracts.2

Through its GASAC representative and publications such as this Guide, NAFOA strives to ensure that the unique needs and interests of tribes and related organizations are fully considered as accounting and financial reporting standards evolve.

1.3 Purpose of This GuideFinancial position, results of operations, and other key data about an organization are communicated by accounting and financial reporting to facilitate:

• Operational and financial management

• Understanding of financial and operational status

• Evaluation of organizational performance

Generally accepted accounting principles (GAAP) are best practices that have been researched, codified, and adopted

2 This is addressed in Appendix E, NAFOA’s Position on Certain Financial Reporting Issues. The confidentiality of tribe financial information was also recognized by the National Indian Gaming Commission in their April 18, 2000 decision, and per 25 CFR Part 517, may deny certain requests under the Freedom of Information Act.


to establish uniform, consistent standards for reliable, relevant financial information. GAAP provides the basis for consistent, useful, and understandable accounting and financial reporting.

Financial reports summarize accounting and other information to meet the needs of an organization’s management, owners, creditors, regulators, donors, and other interested parties. Financial reports can be broadly categorized as “internal” and “external.” Internal financial reports facilitate decision-making and optimize organizational performance by providing timely, detailed financial and operational information designed to be useful in managing an organization. These reports can be designed in any format that provides leadership with key indicators of the health of the tribe, data on various measures that are both financial and non-financial, and other meaningful content that helps leaders establish good fiscal policy. Such reports are an essential element of effective management and are addressed in Chapter 3: “Reporting to Tribal Leadership and Members.” External financial reports are designed to meet the needs of ‘outside’ parties, including owners, creditors, grantors/donors, regulators, and citizens, including tribal members. To facilitate this, GAAP specifies the form and content of external financial reports, as well as the underlying accounting.

Accounting standards and interpretive guidance of organizations such as the American Institute of Certified Public Accountants (AICPA) and the Government Financial Officers Association (GFOA) do not address some of the unique cultural, legal, and operational aspects of tribes. Preparers and users of external GAAP-based financial reports of tribes and related entities are therefore presented with unique accounting and financial reporting challenges. Accordingly, this guide has been prepared to:

• Help financial statement preparers better understand applicable accounting and external financial reporting requirements and alternatives.

• Help users better understand and make use of the resulting financial reports.


2.1 Overview and IntroductionAccounting and financial reporting needs differ for different types of organizations. The information needs of tribes and related entities differ significantly from those of a state or local government, a nonprofit organization, or an international corporation. Accordingly, accounting and financial reporting standards differ based on the characteristics of the reporting entity.

Accounting and financial reporting standards in the United States (U.S.) are established by the Governmental Accounting Standards Board (GASB), the Financial Accounting Standards Board (FASB), and the Federal Accounting Standards Advisory Board (FASAB). The GASB and the FASB are administered by the Financial Accounting Foundation (FAF), an independent not-for-profit organization. The FAF also administers Advisory Councils for each of the boards3 that provide them with input about issues and priorities. According to their website http://www.accountingfoundation.org, the FAF “. . . may be the most important financial oversight body most Americans don’t know about.”

FAF bylaws give the GASB authority to establish and improve financial accounting and reporting standards for state and local governmental entities. The FASB has such authority for nongovernmental and nonprofit organizations. In addition, the FASAB establishes accounting and financial reporting standards for the federal government. Accordingly, in the U.S., the following are recognized standard setting bodies:

Overview of Financial Reporting

2.1 Overview and Introduction2.2 Financial Reporting Frameworks2.3 Governmental Accounting and Financial Reporting2.4 The Financial Reporting Entity2.5 Individual Fund Financial Statements2.6 Reporting Issues2.7 Overview of Financial Reporting Questions and Answers

2.

3 The FAF Board of Trustees invites certain organizations, including NAFOA, to nominate individuals to serve on the Governmental Accounting Standards Advisory Council (GASAC).

Tribes do not fit neatly into this structure because they conduct governmental activities and they often own and operate significant businesses. As described in the following section, GASB standards are generally accepted accounting principles applicable to federally recognized tribes and their businesses that meet the definition of a ‘governmental entity.’ Chapters 5, 6 and 7 provide additional details on accounting and financial reporting applicable to tribal governments, tribal businesses and tribal fiduciary activities.

2.2 Financial Reporting FrameworksProfessional standards of the American Institute of Public Accountants (AICPA) define financial reporting framework as criteria used to determine measurement, recognition, presentation, and disclosure of all material items appearing in financial statements.4 To meet differing user informational needs financial reporting frameworks are specified by the following:

• Statements of the Governmental Accounting Standards Board (GASB), for U.S. state and local governmental entities.

• Accounting Standards Codification issued by the Financial Accounting Standards Board (FASB) for public and private companies and not-for profit organizations.

• International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

• Statements of Federal Financial Accounting Standards, issued by the Federal Accounting Standards Advisory Board (FASAB) for U.S. federal government entities.

General Purpose Financial Reporting Frameworks

The GASB, FASB, IFRS and FASAB frameworks are recognized by the AICPA as ‘general purpose’ financial reporting frameworks, designed to meet the needs of a wide range of users.5 The GASB, FASB and FASAB frameworks constitute U.S. generally accepted accounting principles (GAAP).6 They are designed to provide financial statement users with relevant, consistent, and reliable financial information.

Each financial reporting entity is responsible for determining its applicable financial reporting framework. The applicable framework specifies accounting and financial reporting for the entity in accordance with GAAP. Accordingly, selection of the applicable financial reporting framework is a crucial first step in accounting and financial reporting.

AICPA Professional Standards define applicable financial reporting framework as follows:

TypeofEntity StandardSettingBody

State and local government Governmental Accounting Standards Board (GASB)

Nongovernmental organizations Financial Accounting Standards Board (FASB)

Federal government Federal Accounting Standards Advisory Board (FASAB)

4 AICPA Professional Standards AU-C Glossary of Terms.5 AICPA Professional Standards AU-C Section 200 paragraphs A.5 and A.8.6 AICPA Professional Standards AU-C Glossary of Terms, ET Section 1.310.001 Compliance with Standards Rule and related Appendix A,

Council Resolution Designating Bodies to Promulgate Technical Standards.


The f inancial reporting f ramework adopted by management and, when appropriate, those charged with governance in the preparation and fair presentation of the f inancial statements that is acceptable in view of the nature of the entity and the objective of the f inancial statements, or that is required by law or regulation.7

Auditors are required to evaluate the appropriateness of the financial reporting framework selected by management and those charged with governance. Factors relevant to this evaluation are specified in AICPA Professional Standards AU-C 210.A4 as follows:

• The nature of the entity (for example, whether it is a business enterprise, a governmental entity, or a not-for-profit organization).

• The purpose of the financial statements (for example, whether they are prepared to meet the common financial information needs of a wide range of users).

• The nature of the financial statements (for example, whether the financial statements are a complete set of financial statements or a single financial statement).

• Whether law or regulation prescribes the applicable financial reporting framework.

Because the nature of the entity (a business enterprise, a governmental entity, or a not-for-profit organization) is a factor in the selection of the applicable financial reporting framework, the definition of ‘governmental entity’ is important. The following definition was agreed upon by the FAF, FASB and GASB and it has been incorporated into the standards of the AICPA and the GASB:8 , 9 , 1 0

Public corporations1 1 and bodies corporate and politic are governmental entities. Other 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/position reverting to a government.

• The power to enact and enforce a tax levy.

Furthermore, entities are 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 f rom federal taxation. However, entities possessing only that ability (to issue tax-exempt debt) and none

7 AICPA Professional Standards Section AU-C 200.14.8 See AICPA Audit and Accounting Guide, State and Local Governments, paragraph 1.01 and paragraphs 12.97 through 12.100.9 GASB Codification 1000.801.1 0 Prior to the adoption the FASB Accounting Standards Codification that became effective in 2009 the FASB ‘cleared’ AICPA audit and accounting

guides that contained the definition of a governmental entity.1 1 Footnote to GASB Codification 1000.801 provides the following:

Black’s Law Dictionary defines a public corporation as: “An artificial person (for example, [a] municipality or a governmental corporation) created for the administration of public affairs. Unlike a private corporation it has no protection against legislative acts altering or even repealing its charter. Instrumentalities created by [the] state, formed and owned by it in [the] public interest, supported in whole or part by public funds, and governed by managers deriving their authority from [the] state.” Sharon Realty Co. v. Westlake, Ohio Com. Pl., 188 N.E. 2d 318, 323, 25, O.O.2d 322. A public corporation is an instrumentality of the state, founded and owned in the public interest, supported by public funds and governed by those deriving their authority from the state. York County Fair Ass’n v. South Carolina Tax Commission, 249 S.C. 337, 154 S.E.2d 361, 362.

of the other governmental characteristics may rebut the presumption that they are governmental if their determination is supported by compelling, relevant evidence.

While federally recognized Indian tribes differ substantially in organizational structure and governance from state and local governments, they are all governmental entities under the above criteria because each has the power to enact and enforce a tax levy. Further, the GASB framework is well suited to tribal governments based on the nature of their activities and the needs of the users of their financial statements. Consequently, the governmental financial reporting framework is the applicable framework for tribal governments.

Typically, tribal entities also meet at least one of the ‘governmental entity’ criteria – either the potential for unilateral dissolution of the entity by the tribe with the net assets/position reverting to the tribe and/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.1 2 Many tribal entities that meet the ‘governmental entity’ criteria also have characteristics of a business as defined by the FASB.1 3 Because of this overlap, determining the ‘nature of the entity’ may not provide a definitive answer to the question of which financial reporting framework should be considered the applicable framework. Further, management and those charged with governance may consider the FASB framework to be “acceptable in view of the nature of the entity and the objective of the financial statements, or that is required by law or regulation.”

Accordingly, NAFOA sought input from the AICPA about the implications of selection of the FASB framework by a tribal business that meets the definition of a governmental entity. The AICPA responded that such

financial statements are not considered by the AICPA to comply with U.S. generally accepted accounting principles. Further, if following the FASB framework results in differences from the GASB framework that are both material and pervasive, the AICPA indicates that auditors should issue an adverse opinion on such financial statements. NAFOA’s written request and the AICPA response are included in Appendix E: NAFOA’s Position on Certain Financial Issues.

The GASB and FASB frameworks are significantly different as illustrated by the following recently issued accounting standards:

• In 2009, the FASB issued the FASB Accounting Standards Codification, as the single source of nongovernmental authoritative U.S. GAAP. The Codification supersedes previously established FASB pronouncements and other previously identified sources of GAAP.

• In 2009, the GASB issued GASB Statement No. 55, which established its own GAAP hierarchy, as discussed in a following section of this chapter.

• In 2010, the GASB issued Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, which, for governmental entities, incorporated certain FASB and AICPA pronouncements in the GASB hierarchy, some of which had been superseded by the FASB Codification.

As the GASB and FASB frameworks evolve, differences between them will become increasingly material and pervasive, resulting in an increased likelihood of adverse audit opinions on FASB based financial statements

1 2 GASB standards do not specifically address tribal governments, but in this context ‘state or local governments’ includes tribal governments.1 3 FASB Codification 205-10-20 Glossary, defines a business as “An integrated set of activities and assets that is capable of being conducted and managed

for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members, or participants.” Additional guidance is provided in FASB Codification 805-10-55-4, which indicates a business consists of inputs, and processes applied to those inputs, that provide or have the ability to provide a return to investors, members, or participants.

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