Over the last couple of years, the Government Accounting Standards Board (GASB) has imposed a series of accounting standards that significantly change the financial reports required of tribal entities and governments.
Tribal financial managers, who already orchestrate complex accounting systems, will face an extra burden as they work to understand and adjust to the new standards. For one, complying with these changes means they must restructure tribal accounting procedures.
Several GASB standards changes are already in effect and should be reflected in your 2018 financial reports. (See the Phased Implementation sidebar.) Below we review three of the upcoming standards changes and their likely impact on tribal organizations.
GASB Statement No. 88, Debt Disclosures
Under GASB-88, tribal entities need to review how they disclose debt starting in December 2019.
In particular, GASB-88 distinguishes reporting standards for direct borrowing (such as when the government takes out a loan from a bank) versus direct placements (such as when the government issues bonds directly to investors).
The statement redefines debt as a liability that arises from a contractual obligation to pay cash (or other assets) in one or more payments to settle an amount that is fixed at the date the contractual obligation is established.
What to consider as you implement the new standard: This reporting schedule now includes all forms of long-term debt, including bonds, leases payable, compensated absences and claims/judgments. GASB-88 requires the following new disclosures in the notes to your financial statements:
- Unused lines of credit
- Assets pledged as collateral for debt
- Termination and default events with finance-related consequences
- Subjective acceleration clauses
In addition, you now have to distinguish between direct borrowings and direct placement of debt in the notes to the financial statements.
Review what you’re disclosing for long-term liabilities and check to see whether your debt agreements contain any of the clauses specified. For some tribal entities, GASB-88 may present an opportunity to streamline debt disclosure footnotes to remove items that don’t have to be reported.
GASB Statement No. 84, Fiduciary Activities
GASB-84 establishes new criteria for identifying fiduciary activities. It also changes which fiduciary activities are included in financial statements and what is reported for certain fiduciary funds.
These requirements are effective for the reporting period beginning after December 15, 2018.
GASB's goal in issuing Statement No. 84 is to eliminate the ambiguity that existed in defining a fiduciary activity. Previous standards led to widespread variation on how those activities were reported.
What to consider as you implement the new standard: The new standard will impact financial reporting of minors’ trust funds and tribal-sponsored retirement plans. The standard also addresses when stand-alone tribal businesses engaging in fiduciary activities should be presented in the tribal fiduciary fund statements.
GASB Statement No. 87, Leases
As a lessee and a lessor of land, vehicles and more, tribal governments will have to make significant changes to their accounting standards starting in December 2019.
GASB-87 establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. A lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources.
What to consider as you implement the new standard: Begin by inventorying all lease agreements, including those where the tribe is the lessor and those where the tribe is the lessee. Common leases at tribal governments include land, utility poles, software, copy machines, facilities, school and police vehicles and slot machines.
Summarize lease terms, including payment schedules, discounting of future payments, projected depreciation on the potential capital assets, amortization schedules for potential liabilities and lease periods. Note that the lease term includes the period in which you have noncancelable rights to use an asset as well as the lessor/lessee’s option to extend the lease if it’s reasonably certain they’ll exercise that option.
Look at leases that exist between various entities within the tribe, too. Accounting practices may vary depending on whether the component units involved are blended or discretely presented.
Because certain lease activities may be taking place without accounting involvement, consider holding training sessions throughout your tribal organization to ensure all tribal parties who engage in lease activities are aware of the implications.
New GASB standards are being introduced over a multi-year period:
- GASB-86, Certain Debt Extinguishment Issues, effective after June 15, 2017
- GASB-85, Omnibus 2017, effective after June 15, 2017
- GASB-82, Pension Issues, effective after June 15, 2017
- GASB-75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, effective after June 15, 2017
- GASB-83, Certain Asset Retirement Obligations, effective after June 15, 2018
- GASB-90, Majority Equity Interests, effective after December 15, 2018
- GASB-89, Accounting for Interest Cost Incurred Before the End of a Construction Period, effective after December 15, 2019
As with all effective dates, early application is encouraged.
Where to Go From Here
As a CPA and consulting firm, Wipfli has the resources and specialized knowledge to help you interpret and implement GASB guidance and understand how it impacts your tribe. Contact us to learn more. We’re also offering live training sessions on the New Gaming Revenue and Lease Accounting Standards on May 21 in Oklahoma City, Oklahoma and May 23 in Las Vegas, Nevada. R