New FAF Working Group to Address Financial Reporting for Tribal Governments
REDW | June 7, 2018
The Financial Accounting Foundation (FAF) is forming a new and landmark tribal-government working group to address financial reporting issues that have long plagued tribal governments. Existing financial-reporting frameworks and audit opinions do not recognize the unique nature of tribes and their commercial enterprises under their status as sovereign Nations as recognized by the federal government.
Tribal governments have a long and complex history and relationship with the U.S. government. Although they are recognized as domestic sovereigns, tribes do not receive tax revenue from their citizens or have the ability to tax federal trust lands. As a result, there are limited tax revenues.
Tribes have adjusted to funding shortfalls by engaging in economic development in order to fund government programs and services. Many tribes rely on enterprise revenue transfers in the same manner that state and local governments rely on tax revenues.
Tribal government dependence on the GASB reporting model for commercial enterprises that may require the FASB framework instead, has negatively impacted audits, as this model does not fit neatly into the governmental financial reporting framework (GASB). This has resulted in confusion about whether to apply the GASB or FASB framework.
The AICPA issued technical guidance that requires auditors to issue a “dual” opinion for audits of tribal entities that present their financial statements under the FASB framework. This has resulted in a negative audit opinion for the GASB basis, and another opinion based on the FASB framework. The result from this mismatch has the potential to impact federal funding, bank loans, and the ability to raise capital in the public markets.
REDW principal and Tribal practice leader Corrine Wilson worked with the Native American Finance Officers Association (NAFOA) committee that presented an educational session in March between representatives from NAFOA, the FAF, GASB, FASB and AICPA, and other stakeholders. The new step of a working group comes after years of NAFOA and the Governmental Accounting Standards Board (GASB) working together.